European lenders remain positive about real estate in 2016

The outlook for European commercial real estate lending remains positive for the next 12 months, according to the results of a Cushman & Wakefield survey that reveals more than 90% of respondents will maintain or expand their 2015 activity.

The European Lending Trends report details the survey responses of more than 60 active European lenders who provided over €80 bn of loans in 2015. The survey shows that overall the environment for refinancing remains stable and although the pace of growth for orginations of loans is positive, it is set to be lower in the first half of 2016 compared to the same period 12 months earlier.

Big-3 markets
The UK, France and Germany remain the key markets from a lending perspective with those countries expected to represent 50% of anticipated activity in 2016. There is greater activity expected in the likes of Spain – indicating an increased appetite for risk there - as well as the Nordic countries. This is in contrast to Italy where a desire to lend remains weak.

The majority of lenders (57%) remain engaged in senior lending, which is consistent with previous surveys conducted by Cushman & Wakefield. However, in contrast with the past, there is a higher proportion (20%) of lenders engaged in whole loans. This style is now a clear second preference for lenders, ahead of mezzanine finance and stretch senior. Many lenders will offer a whole loan and then syndicate either the senior or mezzanine position later.

The survey also shows that all property Loan-to-Value ratios (LTVs) are on average in the 55% to 66% bracket across Europe with the highest in Frankfurt and Paris (both 64%) followed by London (63%). Debt funds are willing to lend at higher LTVs compared to commercial banks and institutions and overall relatively few lenders are looking to expand into speculative development.

Margin range
The report shows a broader range in average loan margins across Europe from around 130 bps in Stockholm and 140 bps in Frankfurt and Paris, up to over 250 bps in Lisbon. Milan is the only other city covered where margins are over 200 bps. Looking forward lenders expect margins to remain under downward pressure, the exceptions being Sweden and the UK.

Indeed Cushman & Wakefield’s own observations of the UK market showed margins rose by 25 bps in Q4 2015, notably in London. Commercial banks are typically offering the lowest margins ahead of institutions and debt funds.

Average LTV, margin and size of loan respondents are currently willing to lend in each market based on prime commercial real estate.

Edward Daubeney, Cushman & Wakefield’s head of debt advisory EMEA, said: 'The outlook for overall loan books is one of expansion, with fewer lenders expecting a decline in the next