Survey covering 50% of market shows competition will put pressure on margins and LTV levels
The size of Germany’s property lending market shrank 3.6% last year to €343bn, as banks there continued to deleverage.
But there is wide divergence between banks that are expanding and those contracting their loanbooks, and those winning and losing market share.
In the first survey of German commercial real estate (CRE) lending, the International Real Estate Business School (IREBS) German Debt Project puts the volume of outstanding balance- sheet debt in the market at €343bn, comprising €248bn of commercial loans and €95bn of CRE residential loans – mainly to German multi-family housing.
According to data from Fitch ratings, there is a further €30bn of outstanding CMBS, taking the overall total to €373bn (see fig 2). The report – by Regensburg university, backed by sponsors Real Capital Analytics, Bulwien-Gesa, DTZ, Jones Lang LaSalle and Savills – was unveiled at this month’s EXPO Real trade fair in Munich. Lenders with 50% of the market responded to the study.
• 41.2% of respondents’ loans relate to Germany’s top seven cities, up 6.7% on 2011, while the share of lending to other markets fell. This preference for prime may be a future problem; respondents said availability of prime looks increasingly limited.
• More than two-thirds of lenders comprise landesbanks, savings banks and credit co-operatives.
• As in the UK, banks tend to focus on three-to-five-year lending. The report found that 50% of their maturities were in 2013-2015. But IREBS professor Tobias Just said: “Institutional
respondents didn’t expect this to lead to major challenges.”
• Three-quarters of participants reported “major uncertainties” over regulatory changes and the adequate margin levels to cover regulatory risks – issues that called for strategic flexibility.
But despite regulatory pressures, debt in Europe’s cheapest financing market will get even cheaper in the next 12 months and more banks want to lend on development.
Last year, average margins rose 6.1 basis points. This year, greater competition is expected to cut margins by 5bps, with another 6bps fall in 2014.
Respondents expected loan-to- value ratios to rise from 65.2% in 2012 to 66.7% by the end of 2013 and 67.9% in 2014 (see fig 4).
The share of banks interested in development lending rose from 8% in 2010 to 9.5% in 2012 and some want to increase their exposure further.
Respondents expected no refinancing problems in legacy German portfolios this year or next. Their response to their legacy books is largely to ‘extend and pretend’ (see fig 5). But the report warns: “The financing of secondary and tertiary assets will be challenging as there is a very strong focus on core assets.”
German banks do not expect distressed loan or asset sales to accelerate during 2013-2015. The plan is to repeat the IREBS report every year.