The forecast is in contrast to the position last year. Across the 32 banks surveyed, with real estate books totalling €229bn or 50% of the market, margins on new business actually edged up slightly last year, by 7 basis points to 127 basis points.
Meanwhile loan-to- values were almost unchanged on 2012, decreasing slightly by 0.4 percentage points to 66.3% during 2013. However, the banks predicted that average LTVs will rise by the end of this year to 69.5% and average margins will come down to 114 basis points. The trend is expected to continue into 2015 with LTVs due to rise to 72.1% and average margins as low as 104bps. This is one of the strongest indicators yet of the renewed competitiveness of lenders returning to the German real estate market as they emerge from their legacy problem positions.
“There has been a strong increase in competition from banks that are seeing a booming German real estate market that is relatively attractive compared to other sectors showing less growth, as well as from international players,” says Markus Hesse, senior consultant at IREBS, which is aiming to replicate the long-established De Montfort University UK lending report. “Some have ‘cleaned up the house’ in terms of their problems and are now back to lending again. If all of these banks want to do new business with the same customers then this dynamic will inevitably happen.”
Overall the size of the banks’ real estate loan books increased only marginally by 0.8%, although this was in contrast to 2011 and 2012 when decreases of 2.4% and 0.7% respectively were observed. A larger increase of 2.6% is forecast for 2014 with a further increase of 3.4% in 2015.
There is a continued divide between banks which are increasing their overall commercial real estate books and those still focused on decreasing exposure by selling problem loans. Decreases in loan books of over 5% had been made by 31.3% of banks still weighed down with past problems, whilst 37.3% said they had expanded their real estate book by more than 5%.
The trend for new lending volumes to increase continued in 2013, rising by 11.3%, albeit at a less rapid rate than the two previous years. More banks were also willing to write larger cheques with 17.3% willing to provide more than €100m on a single deal compared to 12.3% in 2012.
A notable theme is a desire amongst investors for increased yield and value which has seen them search for opportunities beyond the seven largest “A cities”. As a result new lending in those core locations decreased by 5.4%, a huge switch from to the 28.8% increase the previous year. New lending outside the top cities increased by 10.8% following a 20% increase in 2012.
One surprise was a large fall in new lending on development projects, by 8.3%, following two years of successive rises. Banks’ overall development finance exposure decreased by only 0.9% suggesting that banks with problem development positions may be having trouble getting them off their books.
Debt funds and insurance companies have gradually become more active in the European real estate debt markets, including Germany. The survey shows collaboration is building, with 41.7% of the banks having clubbed with insurance companies and 29.2% with debt funds.
Co-sponsors of the project are: Bf.direkt, bulwiengesa, Commercial Real Estate Council Europe (CREFC), DTZ, ENA, INREV, JLL and the Zentraler Immobilien Ausschuss (ZIA).
If you do not receive this within five minutes, please try to sign in again. If the problem persists, please email: