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European Real Estate Lending Review
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Activity spike last year as new lending to finance investment and development soars.

Last year saw a 55% increase in tracked European real estate lending origination, with markets across Europe witnessing increased deal flow, lender competition and pricing compression – says a new report from global real estate adviser Cushman & Wakefield.

Published today, the latest European Real Estate Lending Market update also reveals a 123% jump in tracked new investment and development lending in 2014, with refinancing activity increasing by only 10%. ‘Origination’ in the report is defined by collating data for these three types of lending across Europe.

Additionally, the all-in cost of debt for prime lending in the UK is at its lowest level since 2000, with the five-year sterling swap hovering around 1.20% and prime margins down at 1.20%.

Cushman & Wakefield’s EMEA Corporate Finance team tracked lending deals across Europe and monitored 186 lenders across Europe for the report. Encompassing senior, stretch senior/whole loans and mezzanine debt lenders, the tracked deals and lenders represent a broad and diverse lending market.

H1 2014 saw a huge increase in real estate lending compared to the same period in 2013, with tracked origination volumes up 63%. However, H2 volumes – though up 44% year-on-year – did not quite reach the same level, perhaps deterred by the return of economic uncertainty across Europe and associated political tensions.

As expected, a healthy increase in lending volumes was tracked across all major European debt markets in 2014. Most notably, origination tracked in Spain more than quadrupled in 2014 compared to 2013. This supports the increased investor focus the underlying commercial real estate market benefitted from, with commercial real estate investment volumes expected to have increased around 170% in 2014 year-on-year. 

Notably, tracked lending secured by multiple assets or portfolios accounted for 57% of tracked lending by value in 2014, up from 39% in 2013. Large portfolio lending increased dramatically; a trend that is expected to continue.

Further highlights from the report:

  • 45% of all tracked origination in 2014 took place in the UK, while 41% of tracked deals were recorded in the rest of western Europe;
  • Southern European countries of Spain, Italy and Greece doubled their share of tracked lending in 2014 compared to 2013 and saw an 80% increase in tracked volumes;
  • New investment lending accounted for 38% of overall tracked lending in 2014, with refinancing activity close behind on 36% of tracked lending; a striking reversal from 2013.
  • Prime senior margins fell throughout Europe in 2014, with LTVs showing signs of stabilising.

Cushman & Wakefield’s Executive Chairman of EMEA Corporate Finance, Frank Nickel, said: “The tracked increase in both volume and deal flow across Europe in 2014 reflects the general increased appetite for leveraged purchasing; the post-crisis European real estate debt market appears transformed."

“LTVs for prime lending have stabilised and we do not expect significant movement in 2015. Margins will however respond to ever-increasing levels of competition, especially in the likes of Spain and Italy. Certain lenders may be motivated to vacate this super prime space, seeking instead to deliver higher returns further up the risk curve.”

Download the report