Savills survey: Property debt is harder to find and terms are worse, post-covid-19

Real estate debt has become scarcer since the beginning of the covid-19 pandemic, with the shortage most apparent in Europe and North America, according to the results of a global sentiment survey conducted by property consultancy Savills.

In total, 58 percent of respondents to the survey, published on 22 June, said real estate debt has become less available and on worse terms. This was on the back of banks becoming more cautious and tightening their lending criteria amid the pandemic, said Savills.

However, geographic discrepancies are stark, according to the survey results. Three quarters of respondents said debt was less readily available in the EMEA region and North America, compared to 38 percent in Asia-Pacific.

Savills pointed to the sharp drop in transactional activity in European real estate markets as a reason for concern. The number of investment deals in Europe under €20 million are down by 60 percent since the start of 2020, according to data provider Real Capital Analytics, many of which may be reliant on debt to complete.

In Europe, lending rates have as much as doubled for some core German offices, according to the Savills report.

Real Estate Capital reported in April that Germany’s real estate lending banks were already raising margins from the low levels seen in recent years. According to the BF.Quarterly Barometer Q2 2020 published in April by German real estate finance advisor BF.direkt, margins increased during the second quarter from 131 bps to 147 bps in inventory and from 220 bps to 231 bps in property development financing.

Meanwhile in the US, banks have tightened lending standards across all major commercial real estate loan categories, according to a survey by the Federal Reserve.

Although this is unlikely to be a barrier for the large institutional lenders, as there is no shortage of equity in the market, stricter lending may impact the flow of smaller deals in the near term, Savills said.