MIPIM 2012: Debt shortage threathens RE recovery

A shortage of debt financing is seen as the single biggest threat to the recovery of the property market in Europe this year, according to the latest research by CBRE.

The shortage of debt has been flagged up again at the MIPIM property show in Cannes, as property adviser CBRE said the scarcity of real estate finance is that single biggest threat to the recovery of the property market in Europe in 2012.

Yesterday, a different property adviser – Cushman & Wakefield – warned of the severity of banks’ withdrawal from the European commercial real estate debt market over the past year, with just 36 of 78 lenders it approached saying it would be willing to lend to ‘new customers’.

This morning, however, it was the turn of CBRE to underline the scale of the problem as it unveiled its latest Real Estate Investor Intentions survey, completed by more than 340 leading property investors. It revealed that constraints on the availability of debt continue to weigh heavily on real estate investment in Europe, with nearly one in three investors citing the issue as their greatest concern for the market recovering in 2012.

CBRE also found that debt availability was affecting investment activity among 43 percent of the investors in the survey. This was either because they could not borrow to buy the type of assets they wanted or the terms on offer made borrowing uneconomic.

Peter Damesick, CBRE’s chief economist for the EMEA region, said: “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. 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.”

According to the survey, the majority of investors who favour opportunistic, value-added or distressed assets reported debt constraints. “Investors facing debt constraints also are less likely to increase their purchasing activity in 2012, or to be net investors,” Damesick added.

Also assessing the situation for CBRE was Philip Cropper, managing director for real estate finance. “Across Europe, we are seeing continual signs of lender caution,” he said. “Banks that 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 also is worth noting that, in late 2011, CBRE recorded that insurers offered, on average, the most competitive lending terms.”