Lenders to European commercial real estate are much more optimistic than they were a year ago as they become less averse to risk and their workout of legacy loans nears its end, according to DTZ’s latest Money into Property report.

Lenders to European commercial real estate are much more optimistic than they were a year ago as they become less averse to risk and their workout of legacy loans nears its end, according to DTZ’s latest Money into Property report.

Some 40% of lenders now expect a substantial recovery in lending conditions in 2014 itself, compared to just 6% in 2013, according to the lender survey carried out by DTZ in March. Throughout each of the past three annual surveys, more lenders were expecting a recovery to come later in the year.

‘This year’s results suggest that most lenders think that the recovery is already here now. There is no delay as in previous years. This marks a massive change in sentiment compared with 2013,' DTZ's global head of research Hans Vrensen said during a webcast on the report.

Another noticeable improvement compared with last year is the increased willingness to lend against secondary assets. Over 70% of lenders indicated they are now ready to lend against secondary assets, up from around 50% in the 2013 survey. Around 60% of lenders said they are able to lend on assets in Tier 2 and 3 cities, unchanged from last year.

While there is still some reluctance among lenders to move into more peripheral markets, DTZ expects this to disappear, ‘especially as new alternative lenders are trying to increase their market share’.

In a structural change to the lending landscape in Europe, non-bank lenders such as institutions and debt funds are stepping up their exposure to real estate. Following an 80% increase in 2012, non-bank lending grew by 46% last year to account for a total amount outstanding of €50 bn and growth is expected to continue into 2014.

Lenders are also becoming less cautious towards speculative development, notably in Tier 1 cities but also in Tier 2 and 3 cities, compared with last year.

The ongoing diversification of lending sources is 'good news' for transactional activity going forward, Vrensen commented. It also makes real estate markets 'more resilient to shocks', he noted.

Non-bank lending was the main driver of growth in global debt last year, DTZ found. Banks continued to reduce their exposure, albeit marginally compared to the previous year, with real estate debt outstanding falling by just $ 11 bn to $4.7 tln. The reduction was driven by bank lenders in Europe, while in the US net lending was up for the first time since 2008.

Click on the attachment below for the full DTZ Money into Property 2014 report