This article is from the Australian Property Journal archive
BOTH local and international lenders are being drawn to Australia’s emerging build-to-rent sector, as the market’s underlying fundamentals strengthen.
According to CBRE’s latest Lender Sentiment Survey, while the industrial and logistics sector remains in the number one spot on lender wish lists, BTR pulled into second place.
The desire for BTR reflects Australia’s strong population growth projects, extremely tight rental market and a taxation environment that props up the sector’s potential for growth.
In the survey, based on 31 local and international banks and non-bank lenders, the majority expected lending costs to grow, with a moderate dip in respondents wanting to grow their commercial loan books, down to 32% from 44% in October.
“The majority are willing participants in the industrial and build-to-rent sectors, and we see that continuing to build out over 2023, moving into 2024,” said Andrew McCasker, managing director of debt and structured finance at CBRE.
“The underlying fundamentals of Australia’s housing economy is creating significant opportunities in the BTR sector and the desire by domestic and offshore financiers to fund projects will see this sector continue to grow in the coming years.”
As the number one preferred asset class, industrial was favoured by 4/5 survey respondents, with domestic banks showing the strongest preference at 95%.
Domestic banks also showed the strongest preference for office-stabilised assets amongst all respondent categories, at 37%.
With retail also popular amongst domestic banks, at 32%. Though the total percentage of respondents preferring the asset class was down from 21% in October 2022 to 19%.
International banks indicated the largest proportion of interest in BTR projects, with more than 60% of respondents in this category expressing interest in the asset class.
While non-banks indicated the most interest in the residential sector, with 2/3 of respondents expressing interest in either BTR or residential to sell assets.
“The overall reduction in lending appetite was most prominent amongst non-banks, although the results show that are still interested in growing their BTR, residential-to-sell and industrial portfolios,” said Sameer Chopra, head of research at CBRE, Pacific.
“Tighter credit conditions are placing undue downward pressure on future supply, which could boost longer-term rent growth across all sectors.”
Over 40% of lenders also responded that pressure on upward credit margins could continue, to the tune of 20bps.
80% of institutions surveyed preferred an Interest Coverage Ratio (ICR) requirement of 1.5x for new investment grade lending. While Loan to Value (LTV) ratios have been stable around 40-60%.
“This might come under pressure as assets are revalued during the coming two quarters, with a slight uptick in hedging requirements since October last year,” added Chopra.
“Lenders also indicated higher average credit spreads, LTV and ICR requirements for prime office assets compared to their industrial counterparts.”
