The modest upward trend of the BF.Quartalsbarometer score continued during the second quarter of 2024. The sentiment index for real estate lenders climbed from -16.88 points the previous quarter to now -15.30 points. It is the third successive, if moderate, increase after the all-time low of -20.22 points recorded during the third quarter of 2023. The poll for the current Quartalsbarometer survey took place between 14 and 31 May 2024.
“The barometer score may still be deep in the negative range but, for what it’s worth, this is the highest index score in two years. We have reason to hope that the nascent upward trend is here to stay,” commented Fabio Carrozza, Managing Director of BF.real estate finance GmbH, a subsidiary of BF.direkt AG.
One of the things that buoyed the barometer score is that 12.8 percent of the panel participants reported a decline in refinancing premiums. In the previous quarter, none of the experts had observed a drop in liquidity costs. More and more often, the terms of financing are perceived at least as flatlining rather than as yet more restrictive. However, the still difficult transaction environment and insolvencies in the real estate industry have dampened the optimism among market insiders.
New lending remains stable, according to experts. However, nearly half (48.9 percent) of all experts state that their standard one-off transactions have an average volume of ten million euros or less. During the years 2019 through 2022, the proportion of financiers who granted loans averaging up to ten million euros ranged between one third and one quarter. One-off deals that average 50 to 100 million euros were reported by only 11.1 percent of the financiers anymore in Q2 2024 (Q1 2024: 20.5 percent). And none of the respondents quoted an average lending volume of more than 100 million euros.
Dominant aspects in new lending in Q2 2024 included once again risk minimisation (28.8 percent, +0.7 percentage points), maintenance of existing client accounts (24.6 percent, -1.9 percentage points) and maximisation of returns (18.6 percent, -0.4 percentage points). No respondent still thought that generating the largest possible volume in new lending is of key importance.
While the loan-to-value ratios (LTV) reveal a downward trend in a multi-year comparison, they have barely changed, if at all, since the first quarter of 2024. The loan-to-value ratio in inventory financing has remained stable at 61.0 percent whereas the loan-to-cost ratio in property development financing saw a modest drop by 1.4 pp to 66.2 percent.
Neither did margins experience any major shifts since the prior quarter. The average margin across all use classes is currently 246 basis points (Q1 2024: 247 bps) in inventory financing and 336 bps (Q1 2024: 338 bps) in project development financing. But five years back, portfolio margins stood at 122 bps and property development margins at 200 bps.
In the current quarter, panel participants were asked to assess the role that digitisation plays for the lending practice in commercial real estate financing. The question regarding the current situation returned a mixed picture. Responses as to the future suggest that the degree of digitisation in commercial real estate financing will gather significant momentum and bring about a higher lever of process automation, especially in less complex standard business dealings.
Professor Dr Steffen Sebastian, tenured chair of real estate financing at the International Real Estate Business School (IREBS) of the University of Regensburg and scientific advisor of the BF.Quartalsbarometer, commented: “The way I see it, bank lending for commercial real estate financing is too bespoke to be made significantly more efficient by digitisation. So, digitisation has a greater potential to enhance more standardised processes such as ESG reporting.”
