Scarcity of debt is the biggest threat to recovery: CBRE

A shortage of debt finance is seen as the single biggest threat to the recovery of the property market in Europe in 2012, according to the latest research by global property adviser CBRE.

CBRE's latest 'Real Estate Investor Intentions' survey, completed by more than 340 property investors, reveals that constraints on the availability of debt continue to weigh heavily on real estate investment in Europe, with nearly one in three investors reporting this issue as their greatest concern for the market recovering in 2012. CBRE also found that debt availability was affecting investment activity among 43% of the investors in the survey. This was either because investors could not borrow to buy the type of assets they wanted or the terms on offer made borrowing uneconomic.

Reflecting the weaker and more uncertain economic backdrop to the market in early 2012, a quarter of investors in the survey identified a ‘double dip’ recession as the biggest threat to the recovery of the European property market, while 24% cited a potential breakup of the eurozone as their biggest concern.

Peter Damesick, EMEA Chief Economist at CBRE, commented: 'A year ago fears of a 'double dip' recession had eased, although property investors were still concerned about weak occupier demand. The escalation of the sovereign debt crisis and deteriorating growth prospects in Europe have clearly changed sentiment significantly over the past 12 months. However, the single biggest perceived threat to property market recovery is still investors' inability to source new debt and this is significantly affecting investment activity in Europe, particularly outside prime/core markets.'

The majority of investors who favour opportunistic, value-add or distressed assets reported debt constraints in the survey. Investors facing debt constraints are also less likely to increase their purchasing activity in 2012 or to be net investors.

Philip Cropper, managing director, Real Estate Finance, CBRE, added: 'Across Europe, we are seeing continual signs of lender caution. Banks which are actively lending remain focused on prime assets in key markets and terms on offer often vary widely depending on the borrower.'

While institutions such as Axa and MetLife have made very encouraging announcements in recent weeks, their increased presence will only go so far to replace the supply of debt lost through the withdrawal of a number of established lenders to the real estate market. However it is also worth noting that, in late 2011, CBRE recorded that insurers offered, on average, the most competitive lending terms.