Germany is second most popular lending market in Europe
Germany is the second most popular lending market in Europe, according to Cushman & Wakefield’s fifth survey of major lenders across Europe, which was published this month (June).
Germany takes second place, now accounting for 17% of lending activity in Europe, up from 15% a year ago. The UK retains the number one spot, although its dominance has been diluted since the vote to leave the EU last year. It now accounts for 21% of the market, down from 25% at the beginning of 2016, according to C&W. The Benelux countries are in third place with 15%, followed by France and the Nordics, both with 13%.
Germany’s share is being boosted, in part, by the fallout from the Brexit vote in the UK, according to Nigel Almond, Cushman & Wakefield’s head of EMEA capital markets research. ‘However, even before the Brexit vote, the UK was starting to slow down,’ he said. ‘The UK was ahead of the curve and other markets are now playing catch-up.’
Despite ongoing political certainty in the UK, its share of the market is unlikely to fall significantly this year, according to Almond. ‘The UK remains one of the largest real estate markets in Europe. Lenders follow borrowers and demand to invest in the UK is still very much there.’
Europe’s lending market appears to have got its mojo back, with nearly half (47%) of the European commercial real estate lenders who were surveyed saying that they expect an increase in new loan originations over the next six months. A further 36% intend to maintain their current level of activity. Only 17% believe that loan originations will fall.
Unsurprisingly, lenders are primarily focusing on the three big economies of Germany, the UK and France, although there has also been significant growth in the Benelux and Nordic regions, according to C&W. The Nordics are performing well due to the region’s strong fundamentals which include stable governance and a transparent tax environment as well as high levels of investor liquidity.
Senior debt remains the preference 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, according to the survey.
‘Strong competition from lenders towards prime assets in major markets has maintained some downward pressure on margins since the start of the year,’ said James Spencer-Jones, head of EMEA structured finance at C&W. ‘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. ‘
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.
‘Lenders have a clear focus on prime, good quality assets,’ said Almond. ‘There’s still some pressure on margins but lenders are being much more selective on what they lend on. They’ll price accordingly, even if that’s beyond the means of some borrowers.’
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, according to Almond at C&W. ‘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,’ he said.
DATA FOR CHART FROM C&W
One year ago
Six months ago
Current
United Kingdom
25%
22%
21%
Germany
15%
15%
17%
France
12%
14%
13%
Benelux
12%
13%
15%
Spain
9%
11%
8%
CEE
6%
9%
6%
Italy
8%
8%
6%
Nordics
11%
7%
13%
Baltics
1%
1%
1%