Banks across Europe have become more cautious about financing commercial property development, but research from CB Richard Ellis has found that debt capital is still available for the right developer in the right location.
CB Richard Ellis analysed bank lending attitudes in 19 European countries and how they differ today from mid-2007. Whilst almost all banks are more cautious about development finance in light of the credit crunch, the extent of the attitude changes varies widely between different countries and institutions. Heightened caution was most evident in the UK, Ireland and France, reflecting an adjustment from previously liberal lending policies and the likelihood that these markets will enter a period of weaker value growth. By contrast, banks in some other countries, such as Austria and the Nordic markets, were already more conservative prior to mid-2007 and have seen relatively minor changes in their lending practices.
The main consequences of this shift are higher lending margins, lower loan-to-value ratios and increasing pre-let requirements as a condition of lending. Bank margins have increased in the majority of countries, and in general, are now in the region of 150-200 basis points above base, but typically higher in Eastern Europe rather than Western markets, and higher for long term lending facilities.
In contrast to the position in mid-2007, few lenders are now willing to offer loans of more than 80% of value, and in some markets, such as the UK, Spain and Germany, typical loan-to-value ratios are now under 60%. Similarly, willingness to lend on predominantly-speculative schemes has tightened sharply in previously-buoyant markets such as the UK and France. Others such as Denmark and the Netherlands already required at least 60% pre-lets, and have therefore been affected less by the onset of the credit squeeze.
Richard Holberton, Director of CB Richard Ellis' EMEA Research and Consultancy, said: "It has become clear that European banks have become more cautious about development finance, but this caution is manifested in different ways in different markets. Local market conditions and lending practices matter greatly. For instance, in some markets such as some of the Nordic countries, bank attitudes to real estate lending were already relatively cautious, often to the extent of excluding speculative development lending.
"However other jurisdictions have seen larger shifts. In several, notably France, the main response of lenders has been to focus lending much more tightly on the best developers and the best locations