In the past 12 months, prime office lending – the largest and most liquid sector in real estate debt – has experienced falling margins and slightly increasing average loan-to-value ratios, which indicate a borrowers’ market.
Real estate lending margins fell in 13 European markets, including France, Italy, Belgium, Ireland, the Netherlands, Portugal, Spain, Denmark, Finland, Sweden, Hungary, Poland and Romania, according to CBRE’s latest European Debt Map.
Senior LTVs have risen in seven countries, including Italy, the UK, Austria, Switzerland, Finland, Norway and Sweden; and stayed flat in France, Germany, Belgium, Ireland, Spain, Denmark, Hungary and Romania.
The data highlight a general shift towards cheaper debt at stable or increasing LTVs. This has been particularly true in the main European markets of Germany, France and Italy – though not the UK – and many of the smaller Western European and Scandinavian markets.
In the UK, CBRE has noted an increase in LTVs but margins have also edged up, which demonstrates a greater degree of caution from domestic lenders compared with their Continental counterparts.
“Lenders are facilitating healthy levels of transactions, but may increasingly become wary of falling margins and rising pressure on LTVs – particularly given the historic levels of capital growth now incorporated into current values – and engage further prudence in section markets, assets and borrowers with which to engage,” said Paul Coates, head of debt and structured finance Europe at CBRE.