Active debt market to lengthen market upswing

The European property market cycle is expected to stay strong for longer as a result of the increasingly diversified debt market according to a new report by Colliers International.

The property adviser predicted that debt liquidity including new participants like long-dated providers of debt as well as investors into the non-performing loan market would help prolong Europe’s current bull market. In a report called How long will this property bull market last? Colliers cited four major factors in how the debt market could have a positive impact:

1. There is a clear appetite from pension and insurance funds to increase their exposure to commercial-debt, including moving into development finance. This will slowly improve the choice and availability of debt across the European markets.

2. When equity fund appetite begins to moderate, an increase in debt availability will extend the life of this cycle by increasing the purchasing power of a wider range of investors

3. The recycling of repackaged distressed debt and assets acquired to date can be re-sold back into the investment pool, increasing investment turnover.

4. When European NPL debt/asset opportunities have been absorbed, packaged and re-sold, said opportunistic investors will be seeking fresh opportunities, possibly by exploiting opportunities in ‘riskier’ Tier 2 and 3 markets across Europe, or by moving up the risk curve into development or CMBS.

The report noted that although there was an increasing number of insurance companies and pension funds active in the market that 90% of commercial real estate debt is still held by traditional bank lenders. This has been made possible by banks disposing of their distressed legacy positions and “breathing new life and funds into the lending market”.

Colliers also predicted that the weight of capital from the United States would also help increase capacity within the European debt market as North American lenders look to back domestic investors that were venturing to the Continent.