Scarcity of debt is biggest threat to European property market
A shortage of debt finance is seen as the single biggest threat to the recovery of the property market in Europe in 2012, according to the latest research by global property adviser CBRE.
Launched at MIPIM 2012, the property industry’s annual trade show held in Cannes, France, CBRE’s latest Real Estate Investor Intentions survey, completed by more than 340 leading property investors, provides high level insights into investor sentiment towards global real estate markets and forecasts activity for the year ahead.
The survey reveals that constraints on the availability of debt continue to weigh heavily on real estate investment in Europe, with nearly one in three investors reporting this issue as their greatest concern for the market recovering in 2012.
CBRE also found that debt availability was affecting investment activity among 43% of the investors in the survey. This was either because investors could not borrow to buy the type of assets they wanted or the terms on offer made borrowing uneconomic.
‘A year ago fears of a double dip recession had eased, although property investors were still concerned about weak occupier demand. The escalation of the sovereign debt crisis and deteriorating growth prospects in Europe have clearly changed sentiment significantly over the past 12 months,’ said Peter Damesick, EMEA chief economist at CBRE.
‘However, the single biggest perceived threat to property market recovery is still investors’ inability to source new debt and this is significantly affecting investment activity in Europe, particularly outside prime/core markets,’ he explained.
‘The majority of investors who favour opportunistic, value add or distressed assets reported debt constraints in the survey. Investors facing debt constraints are also less likely to increase their purchasing activity in 2012 or to be net investors,’ he added.
According to Philip Cropper, managing director for real estate finance, CBRE, there are signs of lender caution across Europe.
‘Banks which are actively lending remain focused on prime assets in key markets and terms on offer often vary widely depending on the borrower. While institutions such as Axa and MetLife have made very encouraging announcements in recent weeks, their increased presence will only go so far to replace the supply of debt lost through the withdrawal of a number of established lenders to the real estate market. However it is also worth noting that, in late 2011, CBRE recorded that insurers offered, on average, the most competitive lending terms,’ he said.
Reflecting the weaker and more uncertain economic backdrop to the market in early 2012, a quarter of investors in the survey identified a ‘double dip’ recession as the biggest threat to the recovery of the European property market, while 24% cited a potential breakup of the eurozone as their biggest concern.
The CBRE survey also revealed that investors are reacting to the eurozone sovereign debt crisis in diverse ways, but most commonly by avoiding specific eurozone real estate markets and/or focusing on lower risk assets.
‘Our research indicates that the eurozone crisis is pushing many investors towards more cautious and defensive strategies. However, this finding needs to be balanced by the significant appetite for riskier property assets among investors, with many expressing substantial interest in purchasing non-core assets. For 13% of investors in our survey, their reaction to the eurozone debt crisis was to seek distressed assets in markets most affected by sovereign debt problems,’ explained Damesick.
The survey results also point clearly towards investors wishing to commit more capital to European real estate despite the risks and uncertainties currently overhanging the market. Over 80% of investors in the survey indicated that their purchasing activity in 2012 would be about the same or greater than in 2011 and a clear majority, 61%, indicated that they would be net investors with purchases exceeding sales.