Primary Market for Commercial Mortgages.

Demands for credit to finance commercial real estate activity have remained robust since the 1998 Report. Total commercial mortgage debt outstanding increased to more than $1.5 trillion by the first quarter of 2000, up from less than $1.3 trillion at the end of 1998, despite some overall firming of credit market conditions. Growth in retail, office, and other mortgage loans outstanding, which account for three-fourths of total commercial mortgage loans, was particularly robust. Available information for the first half of this year suggests that the pace of borrowing has remained brisk, though it has begun to show signs of slowing in recent months.

Continued high levels of investment in office and other commercial buildings have buoyed commercial mortgage borrowing over this period. Real expenditures on office space, spurred by low vacancy rates and rising prices, moved up sharply through 1998 to the highest levels since the peak of the 1980s building boom. Outlays have remained substantial thus far this year.

Commercial mortgage credit quality has remained very favorable. Delinquency rates on commercial mortgages at commercial banks, at life insurance companies, and in securitized pools are below 2 percent and have been stable for the past two years.