New Business Report Real Estate Financing

Full year 2022

June 09, 2023
New business figures and loan portfolios for commercial real estate financing by German banks

Germany’s economy proved to be thoroughly resilient by the end of 2022 with its gross domestic product (GDP) increasing by 1.9% despite the various challenges faced, including the Ukraine War, rising energy prices and continuing disruptions to global supply chains. The main contributors to this increase were the catch-up effect that occurred after the Covid-19 pandemic and the supply bottlenecks that eased in the second half of the year. However, further growth was stifled by sustained price rises. Investors also exercised restraint due to the uncertain economic outlook and unforeseeable developments in monetary policy.

This uncertainty was also evident in the real estate sector which was particularly affected by the high level of inflation and accompanying key interest rate rises by the European Central Bank, driving the vast majority of investors into passivity. Conversely, traditional investment products such as German Government bonds became popular again.

Germany´s real estate investment market closes the year with subdued results

The real estate investment market recorded a total transaction volume of €66 billion in 2022. Although this was 41% down year-on-year, the 2021 result was at a record high of €111 billion. If we analyse the results over a longer period, the 2022 volume was a mere 8% below the average of the past ten years. A transaction volume of around €36 billion was recorded in the first half of the year, followed by around €30 billion in the second six months. Office property was the dominant real estate segment last year, accounting for around 33% of the transaction volume, an increase of 8%-points compared to 2021. With around 22%, the second strongest-performing real estate segment was residential (living). This segment, which includes residential real estate, student housing and retirement and nursing homes, lost 25%-points compared to the previous year. However, numerous major transactions, including Vonovia’s takeover of Deutsche Wohnen, were concluded in 2021. Retail and logistic / industrial properties followed, each with a share of 14%.

Core and Core-Plus investments remained in the focus of investors, with almost 90% of transactions carried out falling into these risk categories. At around 48%, Germany’s Top 7 real estate strongholds accounted for almost half of the transaction volume, but their percentage share was down around 16%-points compared to the previous year.

In general, there was a noticeable reluctance by lenders to grant new loans across all real estate segments. Although Core and Core-Plus products in good locations in particular continued to be financed, the expected development of the investment market and the rising interest rates were already taken into account when structuring the loans. As a result, the focus shifted to the ability of investment properties to service their debt but this can be considered to be a limiting factor.

New business declines slightly

To quantitatively assess the situation for commercial real estate in the German financing market, JLL analysed and evaluated current and projected new business figures and existing loan portfolios.

The term “commercial real estate financing” covers the financing both of commercially used real estate and residential real estate operated for investment purposes. The new business and loan portfolio figures submitted by selected banks for the purposes of the analysis are explicitly shown in their reports, enabling JLL to carry out a comparative evaluation. The contracted new business figures provided by the banks refer to the domestic market only. In addition to the domestic figures, the loan portfolio volumes include foreign business. The raising of funds through capital products such as capital increases or bond issues are excluded from this evaluation.

By the end of 2022, the volume of new business for commercial real estate financing generated by the participating banks reached €38.8 billion. This is a slight fall of 2% compared to the previous year’s result. Broken down, Bayern LB recorded the largest increase in the volume of new business in Germany, as it did in the first half of 2022; at €6 billion, the previous year's result was exceeded by €1.3 billion. Four other banks recorded an increase in the volume of new business, some of which was substantial; however, most reported a reduction with seven banks experiencing a decline. LBBW recorded the most significant drop at €3 billion.

The negative trend is also evident when looking at the expected volumes of new business in 2023. Most respondents (seven banks) anticipate a further decline in volume over the coming year, while just two expect the volume of new business to increase compared to 2022. Hamburg Commercial Bank anticipates little change in the volume of new business in 2023 compared to last year. DZ Hyp and Hessische Landesbank did not provide a forecast of the expected volume of new business because of the current unpredictable market situation.

Loan portfolios continue to incease

In contrast to new business, the loan portfolio figures showed an overall increase. At €289.9 billion, the previous year’s volume was exceeded by 5%. Eleven of the twelve participating banks increased their respective loan portfolios year-on-year, with only Hamburg Commercial Bank's portfolio shrinking slightly by 2%. Bayern LB reported not only the highest volume of new business, but also the largest increase in loan portfolios. At +€2.4 billion, it was just ahead of HELABA, whose loan portfolio grew by €2 billion.

In addition to the new business and loan portfolio figures which we request on a regular basis, our current survey also asked questions on credit default risk and the volume of loan applications.

When asked which factors currently have the greatest impact on credit default risk, a clear picture emerges. Most of the participating banks perceive the economic trends surrounding the rise in interest rates to be the greatest risk. Three banks also consider the loss of value of collateralised properties as a risk of credit default.

When assessing the development of the credit default risk over the course of the past year, seven of the surveyed banks did not consider the situation to have changed in the financing market. Just two banks perceived there to be an increased risk of credit default in the current market. Three banks did not provide any information on the development of credit default risk.

Moreover, we requested information on the volumes of loan applications for the office, residential, retail and logistic / industrial segments compared to the previous year. The picture was clear across all real estate segments. For most banks, the volume of loan applications decreased. Loan applications for office properties decreased at five banks and were unchanged at two. Just one participant reported an increase in the volume of loan applications. In the residential segment, the volume of applications was lower at six banks, while two recorded an increase. A similar picture emerges for the retail segment. Here, the volume was lower at seven banks and just one bank reported an increase. The picture is more balanced for logistic and industrial properties. The levels reported by three banks were unchanged between 2021 and 2022, while four banks recorded a decline. One bank reported an increased volume.

General conditions and outlook

The challenges posed by inflationary pressures and accompanying interest rate rises will continue to impact the property market in 2023. The first quarter of this year was the weakest quarter experienced by the investment market over the past 12 years with just €7.8 billion invested, 56% below the average value of the past ten years. Many market participants are currently exercising restraint due to the uncertain economic outlook and unpredictability of interest rates. Transaction activity will only be revived by a foreseeable stabilisation of the corresponding factors.

Across all real estate segments, banks’ lending policies have been adjusted to reflect the current market situation. The focus is clearly on a property’s ability to service its debt and on meeting sustainability (ESG) criteria over the long term. The rapid rise in interest rates poses new challenges for both property developers and owners. To sufficiently preserve equity, a comprehensive structuring will be required to close the financing gap resulting from the limited debt service capability and corrected market values.

Contact us

Our Debt Advisory contacts:

Debt Advisory:
Timo Wagner, Associate Debt Advisory

Helge Scheunemann, Head of Research Germany


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