This article is from the Australian Property Journal archive
TOTAL Australian bank real estate debt reached an all-time high in the 2023 financial year, but the growth rate was the slowest since 2020, while investors continue to look beyond the Big Four banks for their commercial real estate (CRE) debt requirements.
Plan1 Project Management and Consultancy research shows debt lifted to 5.7% over the 12 month period to reach $332.5 billion.
Total commercial real estate (CRE) debt held by banks in Australia grew by $17 billion over the past year, still above the 10-year annual average of $15 billion, despite the lack of transactional activity in Australia’s CRE market.
Plan1 co-founder, Richard Jenkins said the growth of Australian CRE debt was led by industrial property, which has now reached its highest level on record.
Buoyed by the structural shift in occupier demand for industrial space, the banks had increasingly re-weighted their exposure to the sector, he said, with industrial property now accounting for 17% of all CRE debt in Australia – up from 12% five years ago.
“Interestingly, CRE debt provided to the retail and office sectors both contracted which may be indicative of occupancy rates and changing retail trends,” he said.
Structural changes in working patterns following COVID has driven CRE debt exposure to the office sector held by Australia’s banks down to the lowest since 2021, having trended up consistently over the past 15 years. This is likely to offer opportunities for non-banks, Jenkins said.
Jenkins added that with inflation maintaining upward pressure on interest rates, economic uncertainty and hybrid work keeping office usage well below pre-pandemic levels, financing office assets remains challenging, with the cost of capital increasing and lender appetite diminishing.
He said the non-banks in Australia’s CRE debt market would increasingly be more involved in the office sector with employers seeking quality workspaces in order to attract and retain talent as well as an ever-increasing emphasis on environmental and sustainability mandates and credentials.
“Only the industrial sector is at record highs with tourism, high-density residential development, retail and office sector debt levels down over the quarter.
Consumers have become cautious with their shopping in amid stubbornly high inflation and cost-of-living pressures, while more people are shopping online more often.
High-density development levels were down over the year by 1.5%.
Residential development – high-density development and land subdivision – debt increased over the year but remains 5% below the peaks of 2017.
According to the analysis, the share of Australian CRE debt held by the big four banks decreased in the quarter to 68.4% – the lowest share since March 2009. The share of Australian CRE debt held by ANZ, NAB, CBA and Westpac peaked at 84.7% in 2013 and continues to slide as investors seek alternative lenders for their CRE debt requirements, Jenkins said.
“In response to APRA’s revisions to ADI capital requirements, banks have been forced to reweight their portfolios to loans backed by income-producing real estate assets.
“CRE debt exposure held by the major banks in the industrial and retail sectors have all reached record highs while their exposure in the office and tourism sector reduced.”
CRE debt held by foreign banks rose over the quarter to be $8.8 billion higher than a year ago. Foreign banks accounted for 25.6% of total CRE debt, which is now at all-time high. Over the past year, Australian foreign debt exposure held by the foreign banks in the industrial, land subdivision and tourism sectors have reached record levels.
Jenkins said that with the major banks of Australia constrained by new regulations, rising bond rates and diminishing appetite, non-banks are likely to continue to grow their market share in the Australian CRE debt market in coming years.
