After several years of caution, major U.S. regional banks are signaling a shift in commercial real estate lending strategy. Recent reporting from CoStar indicates that many lenders expect lending activity to increase in 2026 as market conditions stabilize and interest rate pressure eases.
Institutions including Regions Financial, PNC, M&T Bank, First Horizon, U.S. Bancorp, and KeyCorp are reporting easing headwinds across their commercial real estate portfolios. The shift marks a potential turning point following a period of reduced exposure tied to rising interest rates and declining office values.
Interest Rates Improve Deal Viability
Bank executives have pointed to lower interest rates as a primary factor behind renewed lending optimism. Rate cuts that began in late 2024 improved borrower debt metrics and restored balance to transactions that previously faced underwriting challenges. In multifamily, lower rates are helping projects move forward after a period when higher equity requirements limited activity.
In 2025, refinancing activity limited loan growth at several institutions. That pressure has begun to ease. With rate stability in place, lenders are assessing new commercial real estate commitments across selected sectors.
Bank Outlook Signals Gradual Expansion
Outlooks for 2026 vary by institution, but the overall direction reflects cautious expansion. PNC expects moderate commercial lending growth, with stronger performance projected in the first half of the year. M&T Bank reported that declines in commercial loan balances have slowed, and problem loans are at their lowest level since 2007.
First Horizon noted that commercial real estate loan declines narrowed in the fourth quarter, while loan commitments increased. U.S. Bancorp stated that loan paydowns have slowed and modest growth has resumed, with a focus on multifamily and industrial properties. KeyCorp projects lending to remain flat on average in 2026, with growth anticipated toward year end as more property sales enter the market.
Office exposure continues to influence lending strategy. While credit quality shows signs of stabilization, office performance remains a factor in underwriting standards and capital allocation decisions.