2015 “ripple” effect boosts German financing volumes

German banks provided new domestic commercial real estate financing volumes of €22 billion during the first half of 2016, up 11 percent from the same period last year, according to research released by JLL.

The increase in financing business came despite a sharp drop in investment volumes across Germany during the same period. JLL said that the banks’ lending reflected a “ripple effect” from the record investment volumes done during 2015.

Investment transaction volumes during the first half of the year were €22.4 billion, down from €42 billion during the same period in 2015. Last year’s total was €80.1 billion.

“In contrast to the investment market, the financing market has seen its momentum accelerate in the first half of the year,” JLL said. “From the banks’ accompanying press releases however, it is evident that the new business projections for the full year are cautiously optimistic, given that performance in the second half of the year tends to be weaker.”

The firm added that the impact of the UK’s Brexit vote has not yet been reflected in German lending.

JLL’s New Business Report – Real Estate Financing H1 2016 analyses 14 nationally-active German banks, with the figures estimated to be representative of around 70 percent of new business volume in the German market. In addition to the financing of commercial property it also includes finance to firms holding residential real estate for commercial purposes.

The report noted that HypoVereinsbank wrote €3.5 billion of new business in Germany in the period, including around €900 million of short-term bridging finance. DG Hyp wrote €3.3 billion in the period. At €6.8 billion, the two banks accounted for almost a third of the total volume of new business during the first six months of the year, JLL said.

The agent added that the German market remains intensely competitive: “Margins in this segment are still under pressure and, the financing market remains favourable to borrowers. Given the zero/negative interest rate environment, an increasing number of banks are determined to continue to pursue their conservative strategies and risk-adjusted lending standards. This strategic positioning is reinforced by the likelihood of ever increasing regulatory requirements.”

As new business exceeded budgeted loan amortisations and repayments, there was a slight increase in the size of the banks’ loan books, with nine of the 14 banks which participated in the research reporting an increase in their loan portfolios.

Helaba has the largest loan book, up 5 percent in the last 12 months to €35.8 billion. Despite reducing its loan portfolio by 8 percent, partly by disposing of non-core portfolios, Aareal Bank remained in second place with a €30.3 billion loan book.