Home Property Australia Lenders looking for the alternative options

Lenders looking for the alternative options

  • November 29, 2023
  • by Property Australia
Lenders are looking to alternative assets like childcare

Lenders are showing a preference for investing in non-traditional Australian property assets, according to a recent survey conducted by CBRE.

CBRE Research engaged a group of 40 local and international banks, as well as non-bank lenders, in its H2 Lenders Sentiment Survey.

The findings indicate a relatively stable interest in new Australian property loans for the upcoming three months, with 37 per cent of participants expressing a desire to expand their loan portfolios and 10 per cent looking to decrease them.

There is a growing interest in alternative assets such as data centres, healthcare, life sciences, childcare and self-storage, amongst participants, more than doubling since CBRE’s H1 2023 survey.

“The industrial & logistics sector has retained its mantle as the most sought-after asset class for debt investment, given the sector’s low vacancy rate and rental growth,” CBRE’s Managing Director of Debt & Structured Finance Andrew McCasker said.

“However, we have seen a significant uptick in the appetite to lend on alternative assets following a marked increase in sales volumes and equity side investment appetite to build exposure to these emerging asset classes.

“In tandem, the survey highlights that the appetite to lend on office assets has continued to decline and now trails retail for the first time since the survey’s inception at the start of 2022. Sentiment towards the office sector has been compounded by a lack of sales evidence in the market to demonstrate a softening in yields. Until lenders have certainty as to the impact on values, they will continue to have a conservative view on this sector.”

CBRE Associate Director, Debt & Structured Finance, Will Edwards said the results provided a level of reassurance around the availability of debt capital for pending refinances, noting that these will take place on revised metrics and the time to execute may be protracted.

“The survey responses indicate that more than half of lenders have less than 25 per cent of their loan book maturing in any given year from 2024 to 2026, with no indications of a significant ‘debt-maturity cliff” in Australia,” Mr Edwards said.

Most respondents indicated the absence of pre-lease requirements for industrial construction lending, whereas for office construction, there is a pre-lease requirement of over 60 per cent.

“We anticipate this will start to play a role in office asset construction and re-development being pushed back or postponed indefinitely, except for well-capitalised landlords,” Mr Edwards said.

“For residential, nearly 60 per cent  of lenders expect over two thirds of the debt component of construction finance to be covered through pre-sales, which will continue to weigh on future supply.”

Lenders continue to show interest in well-positioned, high-quality build-to-rent (BTR) assets throughout Australia, with BTR securing the second position after industrial assets in the hierarchy of preferred asset classes for new investments.

The survey also underscores the increasing appetite among offshore banks and non-bank lenders for this specific asset class since the previous CBRE survey.

Mr Edwards said the transactional evidence related to both capitalisation rates and rents is anticipated to positively influence sentiment towards the sector in the future.