Sentiment among European real estate lenders improves

Mira Kantor-Pikus

Head of Equity, Debt & Structured Finance

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The full report

  • Nearly half expect new loan originations to increase within next six months 
  • Lenders competing for prime assets and high-margin return business, but appetite for development finance remains weak
  • Loan-To-Values reverse recent downward trend but average margins rise

Nearly half of European commercial real estate lenders expect an increase in new loan originations within the next six months as competition remains for lending on prime buildings in trusted markets across the continent, according to Cushman & Wakefield.

Cushman & Wakefield’s fifth survey of major lenders across Europe – a mix of banks, funds and institutions – on their commercial real estate lending activities and captures the latest sector dynamics across the continent. Respondents provided views on recent activity as well as trends expected over the next six months.

Close to half, 47%, said they expected to see an increase in new loan originations, while a further 36% anticipate maintaining current levels of activity. Only 17% believed loan originations would fall. This positive picture shows sentiment has improved compared to survey results from the end of 2016.

The report also shows lenders remain principally focussed on activity in the traditional big three markets of the UK, Germany and France. However, while the UK maintains its position as the main market where lenders anticipate focusing activity, its dominance has been diluted since the vote to leave the EU. The UK’s share of the lending market now represents 21% compared to 25% at the start of 2016.

Elsewhere, Germany’s share of lending activity has increased to 17% while significant growth has also been seen in the Benelux and Nordic regions in particular.

Senior debt remains the preferred loan structure 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.   

James Spencer-Jones, Head of EMEA Structured Finance at Cushman & Wakefield, said:Strong competition from lenders towards prime assets in major markets has maintained some downward pressure on margins since the start of the year. 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.  

“Outside the big three markets of the UK, Germany and France there’s been a notable returning focus on the Nordics due to the region’s strong fundamentals which include stable governance and a transparent tax environment as well as high levels of investor liquidity.” 

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.  

Nigel Almond, Cushman & Wakefield’s Head of EMEA Capital Markets Research, said: “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. 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.”

Mira Kantor-Pikus, Partner, Director of Strategic Advisory responsible for structured financing and fund advisory, Capital Markets, Cushman & Wakefield Poland, said: “In CEE markets, banks focus on financing new or few-year-old large commercial real estate located either in capital cities or in major regional cities, generating stable streams of income and having a reputable investment fund as a borrower. Banks engage in price competition in this real estate sector with margins for prime assets frequently down to approximately 140-150bps. In addition to margins, the required level and cost of interest rate hedging also affect prices in CEE countries. There is also increased focus among lenders on the quality of asset management by an investment fund or an experienced asset manager and geographic diversification of portfolios.

“Financing of smaller or older properties is considered largely by local banks and where the lender is confident of appropriate management quality and an exit option in the medium term is ensured. Such financing is slightly more difficult in Poland where local investors generating demand for smaller properties have a market share of just a few percent. Mezzanine finance is relatively infrequent in the CEE region, largely due to limited supply of such financing for smaller projects. Appetite for development finance is relatively strong in most CEE countries, and the key factors considered by banks include - in addition to location, the volume and quality of leases and realistic chances of exit from a project - the investor’s quality and real estate development experience.”


In Poland, average margins rose by approximately 20bps over the past 12 months following the introduction of the bank tax in early 2016. The strongest rise was for margins on lower-volume loans offered by local banks.

All property lending terms and change on 12 months ago