Nearly half of European commercial real estate lenders expect an increase in new loan originations within the next six months as competition remains for lending on prime buildings in trusted markets across the continent, according to new research from Cushman & Wakefield.
The advisor's fifth survey of major lenders across Europe polled banks, funds and institutions on their commercial real estate lending activities and near term forecasts.
While 47% said they expected to see an increase in new loan originations, a further 36% anticipate maintaining current levels of activity. Only 17% believed loan originations would fall.
'Strong competition from lenders towards prime assets in major markets has maintained some downward pressure on margins since the start of the year,' commented James Spencer-Jones, head of EMEA structured finance at Cushman & Wakefield. 'However, the overall picture shows lenders maintaining a degree of caution. This is particularly true for secondary assets where lenders are more selective on what they will finance and heavily focused on amortisation and exit value.'
UK falls as Nordics, Germany & Benelux rise
While the UK maintains its position as the main market where lenders anticipate focusing activity, its dominance has been diluted since the vote to leave the EU, according to the report. The UK’s share of the lending market now represents 21% compared to 25% at the start of 2016.
'Outside the big three markets of the UK, Germany and France there’s been a notable returning focus on the Nordics due to the region’s strong fundamentals which include stable governance and a transparent tax environment as well as high levels of investor liquidity,' added Spencer-Jones.
Elsewhere, Germany’s share of lending activity has increased to 17% from 15% in 2016, while significant growth has also been seen in Benelux, rising from 12% to 15% year on year. France's lending share rose by a percentage point, while the Nordics climbed from 11% to 13%.
Markets still risk averse
Senior debt remains the preferred loan structure for the majority of lenders, although its share has diminished over the past 12 months. This shift has resulted in a rise in alternative structures including stretched senior and mezzanine finance with the former preferred by 20% of respondents, up from 10% a year ago.
The report shows that the average loan-to value (LTV) ratio at the all-property level has risen in the majority of markets and are edging back towards levels seen at the start of 2016.
'In most markets loan-to-value ratios are one to two percentage points below where they were a year ago and remain low by historical standards and are typically around the 60% mark in most European cities,' said Nigel Almond, Cushman & Wakefield’s head of EMEA capital markets research.
'Regulatory pressures continue to act as a restraining hand on the market with no sign of movement back towards the greater appetite for risk seen a decade ago. Caution is also reflected in a greater focus on prime assets over secondary ones or development in second tier markets in the near term,' Almond concluded.
