Desire to grow loan books in spite of economic challenges
Lender interest in Australian commercial real estate has remained high, with several lenders expressing a desire to grow their loan books despite economic challenges.
This is according to new research on commercial property finance from CBRE, which sourced feedback from 43 participants representing local and international banks and non-banks for its Q4 2022 Lender Sentiment Survey.
Among CBRE’s respondents, 44% expressed interest in growing their loan books. CBRE managing director of debt and structured finance Andrew McCasker (pictured above) said this was a slight increase on the previous quarter’s result and was led by non-bank lenders, as higher interest rates make the Australian market more appealing.
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The survey also revealed that only 7% of respondents are planning to decrease the size of their loan books, while 49% said they expected to keep their books at around current levels.
Additionally, industrial was found to be the sector of choice among lenders, with nearly three-quarters of survey respondents expressing a preference for that asset class.
A strong preference for stabilised office and retail assets was also seen among domestic banks, which McCasker said “affirms a flight to quality for credit amid macro uncertainty”.
“Non-bank lenders are keen to grow their exposure to build-to-sell projects and office repositioning opportunities, which is reflective of the higher returns available when lending against riskier assets,” McCasker said. “These lenders have also raised significant credit, suggesting that they are waiting on the side lines for distressed opportunities.”
McCasker said the higher appetite for risk among non-banks was also evident in their preferences regarding pre-lease requirements for new development projects, with these lenders being more likely to opt for a pre-lease rate of below 40% as opposed to banks’ preference for projects that are over 60% pre-committed.
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CBRE associate director of debt and structured finance Will Edwards said that domestic banks were anticipated to hold, if not grow, market share considering strong balance sheets and lower exposure to wholesale markets. On the other hand, international banks showed some early signs of liquidity issues that might hinder their ability to grow their books.
CBRE’s survey found that rate expectations have increased since Q3, with over 40% of lenders expecting margins to increase by 10 to 20 basis points and a further 30% expecting a more than 20-basis-point rise.
“While there are ongoing issues around loan serviceability, we have noticed a slight wind back in hedging requirements, suggesting lenders have comfort that the interest rate cycle is approaching a peak,” Edwards said.
