2018’s real estate finance market in six charts

Data published during the year reveal relatively stable European financing conditions and a revived CMBS market.

As the year draws to a close, much can be learnt about 2018’s European real estate finance market by looking back at the key data. Here are six charts that shed light on financing conditions during the year.

1. Senior lending margins remained low, but there was movement in certain countries.

CBRE’s quarterly Debt Map provides a gauge of loan pricing across European markets. In the core, senior office lending market, there was relative pricing stability, with margins generally low. However, there was evidence of continued margin compression in selected markets – the UK, Spain and Ireland among them. There were also scattered instances of rising margins, with Italy and Hungary in that category.

2. Borrowers needed debt to refinance, rather than buy, but demand for development loans was also up.

Data provided by London-based advisory JCRA showed refinancing was the clear trend across the UK in 2018. Anticipation of rising interest rates was cited as a factor, although, across Europe, property owners are more inclined to hold on to income-producing assets at this point in the cycle, and source finance accordingly. The increase in development finance, on the other hand, reflects property buyers’ hunt for added value in a toppy market. Read more about JCRA’s data here.

3. Leverage increased… slightly

Across the whole of Europe, there was a slight uptick in loan-to-value, according to CBRE’s mid-year Debt Map. However, many core markets remained stable, with leverage around the 60 percent mark. It remains the case that there is a lot of equity capital in the market, capping borrower demand for leverage.

4. Although some lenders became more selective, most debt providers’ appetites for property financing remained large.

Cass Business School’s mid-year report showed commercial real estate lenders originated 27 percent more debt in the UK during the first half of 2018 than in H1 2017 – the first increase in new lending since 2016. Debt providers originated £22.5 billion (€25.7 billion) during the first six months of the year. Many lenders reported becoming more selective and some commercial banks’ volumes dipped. However, as the Cass figures show, lenders remained keen to lend.

5. Securitisation increased

The tail end of 2017 saw an awakening of the European CMBS market. In 2018, there was a relative revival of issuance, with European volumes at their highest since the last crisis. CMBS issuance remains far lower than during the last cycle, but securitisation became a viable distribution option for investment banks.

6. Real estate debt fundraising continued, although North America dominated.

Real estate debt fundraising by region – where a firm plans to deploy capital rather than where the vehicle’s investors are – has fluctuated over the past four years, but one constant has been the rise of North America, according to data from our sister title, Private Debt Investor. After a bumper 2017 of Europe-focused debt fundraising, 2018 was quieter. However, capital continued to flow into the private real estate debt space; a trend likely to continue in 2019.