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Cushman: European banks reducing exposure to non-core real estate

The commercial real estate services firm said that third-quarter transactions jumped partly from increased deleveraging activity.

European banks and asset management agencies have decreased their exposure to non-core real estate by €53 billion in the second quarter from the same period in 2014, according to a Cushman & Wakefield report released today.

That trend is expected to continue, James Webster, one of the financial service firm’s analysts, told PERE. “There is still a significant amount of deleveraging that banks will have to make over the next few years,” he said. “I don’t see anything drastically changing, apart from activity beginning to slow within the UK and Ireland and those nations that have been dealing with these problematic assets.”

The New York-based financial services firm also reported that this deleveraging was one reason that the third quarter was the busiest real estate transaction period in Europe in 2015, with €21 billion changing hands in commercial real estate loans and real estate owned property. Indeed, the third quarter accounted for roughly half of the total €44.6 billion transaction volume in 2015 to date. This uptick – during a typically slow vacation season – came from a few large Irish deals, Webster said.

“The fact that we’ve had such a busy quarter is quite surprising,” he said. “Usually the busiest quarter is the final quarter, so if you look at previous years and apply that logic to this year, you might think we’re going to have a very busy fourth quarter.”

The report also noted that banks’ and asset managers’ non-core real estate exposure varies significantly among countries in Europe, with the UK and Ireland ending their deleveraging cycles as Italy prepares to enter. Spain falls somewhere in the middle, Webster said: while the country’s exposure to impaired assets is rising, its increase is still much lower than Italy’s increased exposure, which rose by nearly €30 billion to €67.2bn.

Overall, the 51 European banks surveyed have a total exposure of €531 billion to the asset class. Cushman & Wakefield has published this European Loan Sales Market report since the first quarter of 2013.