Latest research by AEW, a global real estate investment manager, has highlighted the continued ‘risk off’ attitude since the start of the pandemic with zero loans recorded at loan-to-value (LTV) ratios above 80% post-2019.
This suggested ‘risk-off’ attitude from lenders was further confirmed by the average margin for 70% – 79% LTV loans reported, up by 150bps, while below 50% LTV loan margins remained relatively flat.
Debt used to fund new real estate acquisition was €129 billion for 2020 – down by 15% from 2019 due to the Covid-19 lockdowns.
Across the entire European market, the average annual acquisition LTV remained under 50%. The latest 2021 EPRA and INREV portfolio LTVs returned to their year-end 2019 levels, remaining well below their 2008 to 2009 record levels which confirms the trend seen when only considering acquisitions.
AEW’s updated loan-level database shows average margins for mid-year 2021 at 2.7%, the highest levels recorded since 2003 and continuing their upward trend. Given the near-zero level of base rates, all-in interest rates remained stable below 3%.
All-in UK rates also remained stable while non-UK rates increased more in 2021 than in 2020, which is likely to be a delayed impact from Covid-19 as closed loan margins are typically finalised well after from when they are first offered.
Retail loan margins remain elevated in the post-pandemic period, albeit less than expected with the lowest average margins recorded for logistics and industrial collateral loans.
“We have been compiling granular loan data representing over 1 250 loans or over 10% of the total debt used to fund the acquisition of new real estate across the European market since 2010, which gives us a unique insight into market trends. In contrast to pre-Covid-19 trends, since the beginning of the pandemic there has been a lack of very high LTV (> 80%) loans, as well as significantly higher loan margins for the loans with an LTV between 70-79%, which indicates that lenders are continuing their ‘risk’ off attitude, reducing exposure to higher risk loans, and requiring higher margins” commented Hans Vrensen, Managing Director, Head of Research & Strategy at AEW.
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