European real estate new lending increased by around 55% to around €65bn in 2014, based on estimates implied from Cushman & Wakefield data, driven by increased lending capacity and a 32% increase in transaction volumes to €218bn.
While C&W does not specifically publish an annual lending tally, this can be estimated based on previously published data. In the advisory firm’s lending report for the first half of 2014, C&W record total new lending in Europe of €32.7bn.
In today’s report, called European Real Estate Lending Market which tracked 186 lenders, C&W wrote lending volumes over the second half of 2014 “did not quite reach the same level” as the first half of the year.
An explanation for which was that lenders and investors’ appetite could have been “deterred by the return of economic uncertainty across Europe and associated political tensions”.
Perhaps in addition there are two other variables at play. First, that a large proportion of assets were acquired all-cash with leverage not negotiated by year-end. And second that, like last summer, C&W will continue to increase its H2 lending total into the first half of 2015.
Indeed C&W did confirm that, subsequent to last summer’s publication of its H1 lending report, new loans have come to light increasing the first half figure marginally.
On balance, therefore, it would be reasonable to infer that C&W’s record of annual new lending in 2014 was approximately double the original H1 figure of 2014 – of €32.7bn – with the lower H2 lending volume offset by the revised total for H1.
This “bottom-up” sample of the total European lending volumes for 2014 of €65.4bn, therefore, is the best aggregate of all publically-visible new investment, development and refinanced loans last year.
By comparison, CBRE estimated the volume of the European new investment loans in 2014, through a “top-down” methodology.
CBRE estimates that the volume of new lending in Europe in 2014 at €80bn, reflecting a 57% increase on 2013’s €51bn.
While the absolute volumes between C&W’s and CBRE’s estimates vary, the year-on-year increase in new lending is almost identical, at 55% and 57%, respectively, which arguably gives weight to their accuracy.
Unlike C&W’s sample estimate, CBRE’s lending tally is only commercial property investment loans and does not include residential property, development lending, refinancing or loan-on-loan financing.
The CBRE European CRE Debt Model estimates the size and structure of the debt market by applying leverage assumptions to the level of investment transactions.
These contrasting methodologies are both hugely valuable tools to bring transparency to an opaque market like the European commercial real estate loan market.
Efforts to aggregate all European commercial real estate loans in a comprehensive bottom-up methodology are underway by various market participants, to limited degrees of success to date.
But the task is huge. Consider the annual transaction volumes last year in Europe of €218bn – comprised of €88bn in H1 and €130bn in H2 – which was comprised of more than 6,500 of investment deals.
CBRE estimates that around 70% of these deals included some degree of leverage, which would imply more than 4,500 loans last year.
Of course, CBRE’s annual investment tally is only able to count its own deals in Europe and peers’ deals in the public domain. There are also a large number of very small deals which collectively do not move the needle much on annual investment volumes.
The actual number of new commercial mortgage loans last year is likely to have been considerably higher, but estimates like C&W’s and CBRE are a candle in the darkness.
Peter Cosmetatos, chief executive officer at CREFC Europe, the trade association for commercial real estate lending markets, said: “CREFC Europe considers it an important goal for the industry to improve transparency for the benefit of investors, analysts, market participants and ultimately regulators – everyone would be able to do a better job off the back of a better informational foundation.”
Other highlights in C&W’s report includes:
- 45% of all tracked origination in 2014 took place in the UK, whilst 41% of tracked deals were recorded in the rest of Western Europe.
- Southern European countries of Spain, Italy and Greece doubled their share of tracked lending in 2014 compared to 2013 and saw an 80% increase in tracked volumes;
- new investment lending accounted for 38% of overall tracked lending in 2014, with refinancing activity close behind on 36% of tracked lending; a striking reversal from 2013;
- prime senior margins fell throughout Europe in 2014, with LTVs showing signs of stabilising.
Cushman & Wakefield’s executive chairman of EMEA Corporate Finance, Frank Nickel, said: “The tracked increase in both volume and deal flow across Europe in 2014 reflects the general increased appetite for leveraged purchasing; the post-crisis European real estate debt market appears transformed.
“LTVs for prime lending have stabilised and we do not expect significant movement in 2015. Margins will however respond to ever-increasing levels of competition, especially in the likes of Spain and Italy. Certain lenders may be motivated to vacate this super prime space, seeking instead to deliver higher returns further up the risk curve.”