High borrowing costs and rising cap rates have hampered commercial real estate transactions over the last two years. Still, a new report from the Mortgage Bankers Association suggests that investors continue to close deals, albeit at a slower pace.

The report found that outstanding commercial real estate debt rose by 0.7%, or $31.4 billion, in the second quarter of the year, bringing the total to $4.69 trillion. This modest increase indicates that despite the challenges posed by higher borrowing costs, there remains demand for commercial real estate debt in the market.

"Every major capital source increased its holdings of mortgages backed by income-producing properties, but the growth was mixed, with life insurance companies increasing their holdings by 1.8% and banks increasing theirs by 0.2%," said Jamie Woodwell, MBA's head of commercial real estate research. "With fewer loans being paid off, CRE mortgage balances have continued to grow in recent quarters despite a marked drop in loan originations."