Lenders remain willing to finance UK property, says Cushman & Wakefield

The majority of European real estate lenders remain willing to finance UK commercial property despite the country’s Brexit vote, according to new research by Cushman & Wakefield, which also showed that margins have increased and loan-to-value (LTV) ratios have dropped across Europe.

Around 95 percent of lenders surveyed by the consultancy said that they are still prepared to lend in the UK market, with the remainder saying that they had stopped lending for the time being.

“Our survey shows that Brexit is having little impact on market sentiment from a lending perspective and the fundamentals remain encouraging,” said Edward Daubeney, director of EMEA structured finance at Cushman & Wakefield.

However, the firm did admit that caution following the Brexit vote as well as slower deal activity across Europe compared with H2 2015 had contributed to the overall volume of loan originations dropping across the continent in the last six months.

A total of 80 percent of the lenders polled said that they expected the volume of loan originations to be the same, or to increase in the coming six months, compared with the six months to September. Refinancing activity will increase, 90 percent of respondents added.

In total, Cushman & Wakefield surveyed 50 active European bank and alternative lenders for its latest European Lending Trends report.

“Lenders remain focussed on standing investments in both top tier and second tier markets,” Daubeney continued. “There remains a clear focus on good quality, well-let assets with lenders more focussed on increasing lending on pre-let developments in second tier cities over secondary assets. Where development finance is available, it’s for pre-let developments with experienced developers. Speculative development finance is almost non-existent since the UK’s vote to leave the EU.”

Average margins at the all-property level in many of Europe’s key cities have risen this year, while LTVs in new financing deals have generally fallen back, the report demonstrated.

Margins in the London market at an all-property level have risen from an average of just below 160 basis points in January to 205 basis points in September, Nigel Almond, Cushman & Wakefield’s head of EMEA capital markets research said. Margins in Frankfurt have increased from around 140 bps to 183 bps and in Paris, they have shifted from 140 bps to around 187 bps.

The average loan-to-value (LTV) ratio at the all-property level for new financings has fallen to below 60 percent across all European markets analysed, the report showed. The average level was down from around 64 percent at the start of the year.

LTVs now range from 59 percent in Amsterdam, Frankfurt, London and Paris to 53 percent in Milan. The firm said that this underscores restraint in the market.

The report highlighted average LTVs and margins across several European cities:

• Madrid: Margins are up to 244 bps, with LTV at 55 percent
• Milan: Margins are 232 bps and LTV is 53 percent
• Amsterdam: Margins are 227 bps and LTV is 59 percent
• Brussels: Margins are 210 bps and LTV is 57 percent

“Since our last report, we are noticing a rise in loan margins across the major European centres. At the same time the five-year European swap rate has fallen by close to the same amount which effectively leaves the overall cost of borrowing at similar levels,” commented Almond.

“The UK is no different to the continent with margins in London edging out since our last survey, effectively neutralising the approximate same drop in UK swaps,” he added.

 

“We are seeing commercial banks and institutions typically lending in the 50-60 percent loan-to-value bracket, with debt funds most willing to lend up to 70-80 percent,” continued Almond. “Similarly, margins are typically lower from commercial banks and institutions relative to debt funds. These trends reflect the willingness of debt funds to operate further up the risk curve.”