The global commercial property net debt funding gap has shrunk by 17% to USD117bn, according to DTZ, a UGL company. The biggest gap remains in Europe at USD86bn at 20% below DTZ’s previous May 12 estimate of USD107bn. The remaining USD31bn is in Asia Pacific. As before, DTZ estimates there to be no funding gap in the Americas.
A weaker economic outlook and growing pressure from regulators to force banks into stepping up their deleveraging has led to a more than doubling in Europe’s gross debt funding gap to a gross USD190bn as banks struggle to refinance the legacy debt burden. Similar to DTZ’s earlier analyses, the UK, Spain and Ireland have large absolute and high relative gross funding gaps. But, France, Germany and the Netherlands are significantly impacted by these pending regulatory pressures.
Nigel Almond, Head of Strategy Research at DTZ, and author of the report, says: “The growing diversity of lending channels across Europe is helping to shrink the gross debt funding gap. This reflects the emergence of a growing number of non-bank lending channels including insurance companies, debt funds and corporate bond issuance. We estimate there to be USD75bn of new finance available from both insurance companies and new senior debt funds over the period 2012-13. We have also seen growth in new bond issuance, with a net USD29bn available in the same period. This USD104bn in new lending capacity has helped to shrink Europe’s USD190bn gross debt funding gap to a net gap of USD86bn.”
Globally there remains sufficient equity capital (USD280bn) to bridge the remaining debt debt funding gap. In Asia Pacific available equity of USD70bn is more than double the USD31bn net funding gap. In Europe the USD116bn of equity is more than sufficient to bridge the USD86bn gap.
Hans Vrensen, Global Head of Research at DTZ, says: “Looking forward we see non-bank finance taking an increasing share of the market. We estimate there to be USD225bn in non-bank finance available across Europe over the period 2013-15. This represents more than20% of the legacy loans due for refinance over this period. Whilst in the near term we see insurers as being more active with a two-third market share, we see increasing activity from debt funds and corporate bond issuance leading to a more even distribution in commercial mortgage debt sourcing by 2015.”
DTZ expects regulators and central banks to place greater pressure or reduce liquidity support for the banking sector. This will step up the deleveraging process and force banks to deal more pro-actively with problematic commercial mortgage loans. Moves by the Spanish authorities to acquire non-performing loans will be a welcome step in cleaning up the banking system