Lending activity across Europe is expected to increase in 2024, according to the latest lender intentions survey from global real estate advisor, CBRE.
Nearly two-thirds of lenders surveyed expect to increase origination activity in 2024 with refinancing expected to be the main source of demand. Non-bank lenders such as debt funds, insurance companies and investment banks are expecting moderately higher activity levels (76%) than traditional banks (56%).
'Suppressed levels of investment activity remain the main challenge to the European debt market,' said Chris Gow, head of debt & structured finance Europe at CBRE, 'as the willingness and appetite to lend is absolutely there. This is why refinancing is expected to drive the majority of activity, but based on the survey results, we anticipate development loans being another key source of demand.'
According to the report, the preferred sectors for lending are Industrial and multifamily, each selected as the top sector by 34% of respondents. Sentiment has improved across all major sectors except for office, which remains more challenged, with a notable uptick in appetite for hotels.
The survey also shows that 83% of lenders surveyed are willing to lend to ‘alternative sectors’, with the living sub sectors and life sciences proving the most popular.
When looking at senior loans on prime assets in the office, retail and hotel sectors, most lenders stated that they were prepared to loan at between 50-60% loan-to-value (LTV), and slightly higher for prime Industrial assets at 55-60% LTV.
For multifamily and purpose-built student accommodation (PBSA) assets, this was higher still, with LTVs of upwards of 60%. The survey also showed a range in the margins quoted by respondents, with margins lower for the preferred sectors of industrial and multifamily and higher for retail and hotels.
Additionally, sustainability is now an integral part of lenders’ underwriting strategies. Over half of the lenders surveyed are willing to offer a margin stepdown for loans against assets with good ESG credentials, mostly in the range of 5-20bps.
Added Gow: 'Distress is no longer the major worry for lenders that it was a year ago – not because there is no distress, but because most lenders have evaluated their problematic situations and will deploy work-out strategies in the coming 12-24 months.
'We can see in our current pipeline that investment levels are gradually recovering and we expect acquisition loans to account for a greater market share as the year progresses.'
Tasos Vezyridis, head of thought leadership, Europe at CBRE concluded: 'It is encouraging to see more positive attitudes and an increased appetite to lend from lenders this year.
'Certain sectors of the market remain favoured by lenders, but attractive lending terms are available for prime assets across all sectors. The lending market is on solid footing for when investment activity starts to pick up in the second half of the year.'
