This article is from the Australian Property Journal archive
LENDERS are now favouring investments in Australian data centres, health care, life sciences, childcare and self-storage real estate over office and retail properties, as the traditional sectors struggle through structural headwinds, higher interest rates and high inflation.
CBRE Research tapped a mix of 40 local and international banks and non-bank lenders for its latest H2 Lenders Sentiment Survey, with the results showing a flattish appetite for new Australian property loans over the next three months – 37% of respondents want to grow their loan book and 10% want to decrease.
Credit margins are not expected to change significantly, with almost all lenders expecting a movement of less than 20 basis points over the next three months. Twenty per cent of lenders expect credit margins on commercial real estate could recede during that time.
Interest rate hedging remains a popular requirement for lenders. Nearly two-thirds of lenders require at least 25% of the loan to be hedged.
However, the most noticeable shift has been the appetite for investing in alternative assets, which has more than doubled since CBRE’s H1 survey – nominated by about 18% of lenders as a top-two preferred asset class. CBRE Research indicates there is untapped investment potential in the sector of upwards of $1.3 trillion, amidst growing demand requirements to meet renewable energy targets and portfolio diversification.
Healthcare real estate has been attracting strong attention from key investors. Global wealth manager Real Asset Management has just announced the launch of a new fund in a joint venture with Singaporean sovereign wealth fund GIC that will target $1 billion of Australian healthcare real estate assets, joining fund managers including Dexus, Centuria and HMC Capital to have established specialist health property funds.
“The industrial and logistics sector has retained its mantle as the most sought-after asset class for debt investment, given the sector’s low vacancy rate and rental growth. However, we have seen a significant uptick in the appetite to lend on alternative assets following a marked increase in sales volumes and equity side investment appetite to build exposure to these emerging asset classes,” said CBRE’s managing director of debt and structured finance Andrew McCasker noted.
Nearly 80% of lenders nominated industrial as a preferred asset class.
The burgeoning build-to-rent sector came in second on the list, at about 35%, and residential build-to-sell was next at about 28%. Offshore banks and non-bank lenders have grown their appetite for this asset class since CBRE’s last survey, and transactional evidence around both cap rates and rents is expected to propel sentiment towards the sector moving forward, according to CBRE.
“In tandem, the survey highlights that the appetite to lend on office assets has continued to decline and now trails retail for the first time since the survey’s inception at the start of 2022,” McCasker said. The traditional sectors are respectively at 10% and 15%.
“Sentiment towards the office sector has been compounded by a lack of sales evidence in the market to demonstrate a softening in yields. Until lenders have certainty as to the impact on values, they will continue to have a conservative view on this sector,” McCasker said.
Commercial construction lending pre-lease requirements have bifurcated between industrial and office assets. The largest cohort of respondents indicated no pre-lease requirement for industrial construction lending; in contrast, the largest cohort of lenders to office construction require at 60% pre-lease.
“We anticipate this will start to play a role in office asset construction and redevelopment being pushed back or postponed indefinitely, except for the most well-capitalised landlords,” the report said.
For residential, nearly 60% of lenders expect over two-thirds of the debt component of construction finance to be covered through pre-sales. This is likely to continue to weigh on future supply.
CBRE associate director, debt and structured finance, Will Edwards said the overall results provided a level of reassurance around the availability of debt capital for pending refinances, noting that these will take place on revised metrics and the time to execute may be protracted.
“The survey responses indicate that more than half of lenders have less than 25% of their loan book maturing in any given year from 2024 to 2026, with no indications of a significant ‘debt-maturity cliff” in Australia.”
