Nearly half of European commercial real estate lenders expect an increase in loan origination in the next six months, although risk aversion has kept terms cautious throughout the Continent, according to Cushman & Wakefield’s latest European Lending Survey.
Some 47% of commercial banks, institutions and debt funds said they expect more new loans to be taken out, while only 17% expected fewer.
Lenders have kept focusing on the UK, Germany and France, which had a combined market share of 51%. The UK’s own share of the lending market has, however, fallen from 25% to 21% in the past six months as ongoing uncertainty over Brexit dampened investors’ appetite.
Germany’s share of lending activity has risen to 17% from 15% six months ago, while the Nordics share almost doubled from 7% to 13%.
Cost of debt continued to rise throughout the continent with all property margins averaging more than 220 bps in every major location besides Paris where they were 196 bps. Margins were less than 200 bps in all those areas last year.
LTVs have also stayed low between 58% and 62%, although in Lisbon average LTVs notably rose from 50% to 58% in the past year.
The general trends in margins and LTVs have flipped in the industrial market, where LTVs rose sharply – from 54% to 61% in the past six months – and margins have fallen between 25 and 50 bps in the same period, suggesting higher demand and less perceived risk.
While caution has dictated more expensive and less risky terms, lenders in the least risky tier one markets are turning to non-prime or development opportunities where they struggle to source prime assets, which made up 38% of their target lending.
By contrast, prime lending makes up 49% of second and third tier lending and no lender offers speculative finance.
Nigel Almond, head of EMEA capital markets research, said: “Regulatory pressures continue to act as a restraining hand on the market with no sign of movement back towards the greater appetite for risk seen a decade ago. Caution is also reflected in a greater focus on prime assets over secondary ones or development in second tier markets in the near term.”
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