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Lender interest in Australian commercial real estate continues to be high, a new survey has revealed.
In spite of economic headwinds, a new survey showed that lender interest in Australian commercial real estate continues to be high with some expressing their plans to beef up their loan books.
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Research from Commercial Real Estate Services (CBRE) on commercial property finance found that there is a “good appetite” among local and international banks and non-banks to lend financing for the commercial property sector.
Among the 43 respondents in the study, 44 per cent expressed interest in growing their loan books. The figures represented a slight increase on the quarter’s result.
Notably, non-bank lenders are more open to the prospect of funding commercial property buys.
The report also showed that only 7 per cent of respondents are planning to downsize loan books while 49 per cent expressed they are looking to keep their books at around current levels.
Industrial properties were named as the top choice among the surveyed lenders, with almost three-quarters of survey respondents expressing a preference for new lending for this type of asset.
A deeper look into the data showed that aside from industrial assets, domestic banks showed a strong preference for stabilised office and retail assets.
Conversely, this group of lenders showed a low preference to approving new loans for residential properties both for residential-to-sell and residential-to-rent.
Meanwhile, non-bank lenders showed their interest in increasing their exposure to residential-to-sell projects and office repositioning opportunities.
Commercial property loan levels healthy
While data showed that it is a requirement to achieve an over 50 per cent pre-lease for the bulk of new developments, a closer analysis indicated that non-bank lenders were shown to opt for a pre-release rate of 40 per cent as opposed to banks, which are inclined towards projects that are over 60 per cent pre-committed.
Yet loans to commercial properties are expected to remain at healthy levels; the report noted that new debt would come at higher costs amid a rising rate environment.
The survey found that rate expectations have risen since the third quarter, with more than 40 per cent of lenders now forecasting margins to rise by 10–20 bps with a further 30 per cent bracing for a more than 20-bp increase.
Hedging requirements down slightly
While there is consensus among lenders for an “early 3 per cent Bank Bill Swap Rates (BBSW)” for December 2022, there is an observed significant divergence of expectations for December 2023. Since the last survey, rate expectations among lenders have increased by 50 bps.
But despite the ongoing issues on loan serviceability, the report noted that banks have slightly winded down their hedging requirements.
LVR requirements are now affixed at around 40–60 per cent, indicating that lenders are becoming “more comfortable” regarding the rate trajectory and rental resilience, according to the report.
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