European retail-backed loan losses may reach 11%, says AEW

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These estimates relate to the €572 bn of European real estate loans originated between 2018-21 and equate to 7.5% and 2.5% of defaults and losses, respectively.

According to AEW, this projection is in line with levels seen in European CMBS loan losses post-GFC.

AEW also estimates that retail-backed loan losses across Europe could stand at 11% (or €9 bn of the €80 bn) of those originated in 2018-21. In Germany losses could reach 4.5% (€7 bn – including €2 bn in German retail) of the €157 bn of German property-backed loans originated between 2018-21.
 
AEW has reiterated its €90 bn European debt funding gap estimate across 20 countries, demonstrating that while borrowing costs have come down, refinancing challenges remain. This projection implies that nearly 16% of European real estate loans are expected to be difficult to refinance, as a share of loans originated in 2018-21.

In a global context, this European projection is higher than the US estimate of 14% and APAC of just below 8% while excluding any development loans.
 
Hans Vrensen, head of Research & Strategy Europe at AEW, commented: 'Our latest research reiterates an estimated €90 bn European debt funding gap, which is relatively bigger than projections for the US and APAC. Despite a projected reduction in Eurozone borrowing costs to 3.4% by the end of 2025, we estimate defaults at 7.5% of the €572 bn in CRE loans originated in 2018-21 and projected CRE loan losses of up to €14.5 bn for European CRE lenders.'

He added: 'The majority of European banks are expected to remain resilient in the face of these losses as post-GFC lenders are better capitalised and regulated. There could be a possible exception for some German covered-bond funded banks while some emerging non-bank CRE lenders in Europe will also be tested in the coming years.'