German financing index flags mood shift among lenders

The buoyant sentiment in the German commercial real estate financing sector is fading, according to the quarterly reading for Q2 of the FAP barometer, a measure to reflect the intentions of German real estate lenders, which we track closely here at REFIRE

After the record level of the first quarter (2.87 points), the sentiment barometer has dropped to 2.04 points due to sinking margins, as well as a dip in new lending. In the first quarter, 58% of the lenders reported a rise in new business, but that number has now dropped to 45%.

Spreads in inventory financing have now narrowed to a mean of 147 basis points (Q1, 2015: 158 bps). Since the beginning of 2014, spreads have fallen by more than 27%. Yet 66% of the respondents rated the terms of financing as "more progressive" compared to Q1, and no respondents said they were aware of tightened terms.

Among asset categories, the top spots went to lending for office (the traditional leader) and residential. The niche segment of underground car parks and micro-apartments recouped their fall from favour in the previous quarter.

Curth-C. Flatow, managing partner of Flatow Advisory Partners, which manages the FAP Barometer, commented: “Apparently, things are getting back to normal. The high expectations vested in the real estate business of 2015 no longer define the sentiment of market players, as they have shifted their focus back to the day-to-day business.”

This time, the poll also asked about a possible interest hike with 50% responding that they consider a 50 basis points increase possible over the next 24 months, and nearly one in three believing it could even happen within a year.