Commercial real estate loans in core Europe face $55 bln funding gap, report says


LONDON, April 25 (Reuters) – Around one in five loans backing commercial real estate (CRE) in Britain, France and Germany that fall due between now and 2025 are likely to face refinancing challenges given higher interest rates, real estate management firm AEW said on Tuesday.

AEW estimated the CRE sector, made up of multi-family residential, offices, industrial, and retail, will face a 51 billion euro ($55.95 billion) debt funding gap through 2025 in these three countries.

The shortfall for debt maturing this year in the sector is around 17 billion euros, AEW forecast in a new report.

The gap is calculated as the difference between the original amount of the loans put in place between 2018 and 2020, and the amount that lenders will be keen to refinance at.

A surge in rates and declining property valuations compounded by structural changes since the COVID-19 pandemic have placed CRE in the spotlight.

“To bridge the estimated 51 billion euros funding gap, lenders and borrowers will have to be creative, meaning that either the equity owner puts in additional capital or another lender steps in or a combination of the two,” said Hans Vrensen, AEW head of research and strategy.

“If a restructuring is not possible, then the loans may be at risk of default.”

The size of the funding gap forecast is unchanged from previous estimates in January and is concentrated in Germany.

Germany, Europe’s biggest economy, accounts for 46% or 24 billion euros of the gap among big European economies from 45% in the AEW January report.

This is followed by a 29% share in France while Britain’s share declined to 25% from 33%.

The bulk of the debt shortfall across the three countries is expected in 2024 at 21 billion euros.

The report expects retail loans where the amount of debt exceeds 75% of the value of the property to be most at risk.

Vrensen said the positive news for the sector was that market borrowing costs had started easing and higher rents will help borrowers to service increased funding costs.

Reporting by Chiara Elisei, editing by Dhara Ranasinghe and Barbara Lewis

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Chiara reports on the European credit markets, spanning different countries, sectors and asset classes from investment grade bonds all the way to distressed debt. She previously worked at Debtwire as Managing Editor, heading up a team of reporters and analysts specialized on sub-investment grade debt. Chiara holds a PhD in Classics from Scuola Normale Superiore di Pisa, Italy.

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