Major banks' dominance wanes, according to new research
Non-bank lending now accounts for a 16% market share of the Australian commercial real estate debt (ACRED), marking a significant rise from 10.4% in 2020.
This growth contrasts with the decline of major banks’ dominance in the sector, which has fallen from 86% to 73% over the last 10 years, according to a study commissioned by Payton Capital and conducted by Foresight Analytics.
The trend, Payton Capital said, also highlights significant opportunities for both borrowers and investors, with a clear shift from major bank financing towards non-bank lenders within the property development arena.
The research estimates the non-bank ACRED market’s value at $74 billion and projects the potential for this market to double within the next five years.
David Payton (pictured), chief executive of Payton Capital, emphasised the importance of the findings, which corroborate the observed shift towards non-bank lending.
“Our business growth in recent years clearly shows we have experienced this shift towards non-bank lending. However, to see it outlined in the data we’ve compiled is really exciting for the whole non-bank (ACRED) industry,” Payton said.
Read more: Payton Capital snags former MaxCap COO
Non-bank ACRED lenders have seen a remarkable 35% compound annual growth rate (CAGR) since 2020, supported mainly by investments from high-net-worth individuals, family offices, and institutional investors, establishing them as pivotal contributors to the ACRED sector.
Traditional banks have scaled back their involvement in development funding, exemplified by a decrease in the National Australia Bank’s developer financing from 16% in 2013 to 7% in 2023.
Factors such as tighter regulatory conditions following the implementation of BASEL III, Australia’s robust population growth, and the ongoing shortage of residential properties have contributed to the imbalance between supply and demand. In addition, the surge in residential property prices has bolstered investor confidence, highlighting the attractiveness of ACRED for generating premium stable monthly incomes, secured against real estate, and offering superior risk-adjusted returns compared to more volatile asset classes.
Foresight Analytics identified the mid-market segment, ranging from $5 million to $50 million and managed by firms overseeing less than $2 billion, as holding the most substantial growth potential for non-bank lenders.
“As a whole, non-bank lenders, particularly those in the mid-market space, have proven that they are able to mobilise and activate property projects faster, with more flexibility, increasing certainty for property developers,” Payton said.
“This ability, paired with strong investment fundamentals of fantastic risk adjusted returns, continues to drive growth in the non-bank lending market.
“However, this is still a shifting landscape, and it’s crucial for investors to work with experienced managers that are well researched, and have the team expertise, including local people on the ground, to originate and manage quality assets.”
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
