The debt funding gap across Europe is expected to reach EUR 115 bn over the next two years, according to DTZ Research in its latest report. This gap varies across countries, but 56% of the European debt funding gap is estimated to be in only two countries, the UK and Spain. France, Germany, Italy and Ireland account for a further 28%.

The debt funding gap across Europe is expected to reach EUR 115 bn over the next two years, according to DTZ Research in its latest report. This gap varies across countries, but 56% of the European debt funding gap is estimated to be in only two countries, the UK and Spain. France, Germany, Italy and Ireland account for a further 28%.

Based on a separate analysis, DTZ Research estimates there to be EUR 58 bn of equity available to target direct real estate in Europe in each of the next two years. The new EUR 116 bn equity is sufficient to finance the European debt funding gap in the next two years. But, since the equity has been available for some time and the debt funding gap remains, it does trigger the question - why has the debt funding gap not been resolved yet with all this available equity?

Said Kostis Papadopoulos of DTZ Research and co-author of the report: 'There have been a number of obstacles, both on the equity as well as the debt side, that have so far prevented the effective matching up of the available new equity to finance the debt funding gap. On the equity side, there has been a divide in the type of opportunities that investors are seeking.'

Many global, opportunity-driven fund managers are keen to invest in bank’s loan portfolios. But, their high total return requirements would only be met if banks sell loans at significant discounts to par. 'On the other hand, most institutional investors are focused on investing in prime properties in core markets. Also, many of these institutions do not have to ability to buy loan positions,' said Mr Papadopoulos.

Nigel Almond of DTZ Research adds: 'We have recently seen a number of pressures building up for both the equity and debt sides to become more incentivised to find solutions. On the equity side, we see pressures from the limited commitment periods and possible further downside in the letting markets. On the debt side, we expect policy unwinds, reserve requirements and continuing problems with wholesale funding markets.'