CBRE: Lending activity across Europe is projected to rise in 2024

Lending activity across Europe is expected to increase in 2024, according to the latest CBRE Lender Intentions Survey. The survey, which gathered responses from 130 Europe-based participants, explored their anticipated activities, lending terms and criteria, and preferred strategies for the upcoming year.

The findings reveal strong resilience within the debt markets, with two-thirds of surveyed lenders planning to increase their activity, primarily through refinancing. Non-traditional lenders, such as debt funds, insurance firms, and investment banks, anticipate a slightly higher level of activity (76%) compared to traditional lenders (56%).

Jørgen Arnesen, Head of Investment Banking Nordics at CBRE, highlighted the ongoing moderate investment activity levels, uncertainty regarding property values, and the expectation of sustained higher policy interest rates as the main challenges for the debt market. Despite these hurdles, there is notable growth in both investment and lending activities, including new international lenders entering the Nordic markets for the first time. Most debt activity is related to refinancing existing loans, with some development loans also being issued for high-quality sponsors and projects.

Preferred Sectors: Industrial and Multifamily
The survey indicates that the preferred sectors for lenders are Industrial and Multifamily, each chosen by 34% of respondents as the top sector. Sentiment is improving across all major sectors except for the Office sector, which continues to face difficulties. Interest in the Hotel sector, however, is significantly increasing. Additionally, 83% of surveyed lenders are willing to lend to ‘alternative sectors,’ with the Living sub-sectors and Life Sciences being the most favored.

Higher LTV Against Prime Assets
For Senior Loans on prime assets in the Office, Retail, and Hotel sectors, most lenders are prepared to loan at a Loan-To-Value (LTV) ratio of 50-60%, with prime Industrial assets slightly higher at 55-60% LTV. For Multifamily and Purpose-Built Student Accommodation (PBSA) assets, the LTV exceeds 60%. The survey also shows varying margins quoted by respondents, with lower margins for the preferred Industrial and Multifamily sectors and higher ones for Retail and Hotels.

Sustainability has become a key component of lenders’ underwriting strategies. About 70% of surveyed lenders are offering, or planning to implement, a margin step-down for loans against assets with strong ESG credentials, mainly in the range of 5-20bps.

Lars Haugen, responsible for CBRE Research Norway, concluded: “The insights from our Lender Intentions Survey present a promising outlook for the Real Estate market. The majority of lenders are increasing their activities and reporting enhanced credit appetite in most sectors. Despite the challenges faced by the office sector in Europe, the Nordic office market remains resilient. The lending market continues to be a crucial part of the anticipated uptick in investment activity, which we have already started to see in some Nordic markets.”

By Jørgen E. Arnesen | Lars Haugen – 02 Jul 2024 | Capital Markets, Research