Deleveraging will slow European investment growth: DTZ

New European banking regulations are expected to force further deleveraging in the real estate sector and will increase the existing debt funding gap across key European markets, according to DTZ's new edition of its Money into Property 2012 Europe report.

The survey indicated that sentiment among both lenders and investors has deteriorated in the past year//. Lenders expect less new lending and tighter conditions, with a further decline in existing loan performance. Investors expect less net investment activity and fear a decline in bank lending. Half of EMEA investors are in talks with their banks on loan amendments, the survey revealed. However, increased activity from non-bank lenders is expected to help bridge the debt funding gap. Europe is probably the most attractive place for these new lenders as the funding gap is the biggest.

Despite the economic turmoil, the European commercial real estate market proved resilient in 2011 with 5% growth to EUR 3.25 trillion of invested stock. There were sharp contrasts in trends, however. UK stock levels shrank (-1% in local currency) but the Continent showed a wide range of growth rates, from -6% for the Baltic states to +19% across the CEE countries.

'The main surprise in 2011 was that European debt continued to increase, particularly in the CEE and France,' said Hans Vrensen, global head of Research at DTZ. 'However, because equity growth was more robust, there was still resultant deleveraging over the year. At 58%, the average European loan-to-value ratio remains only modestly down from its peak of 62% in 2009.'