Australia’s emerging Build to Rent sector has gained local and international lenders as the market’s underlying fundamentals continue to strengthen, research by real estate and investment firm CBRE suggests.
CBRE’s latest ‘Lenders Sentiment Survey H1 2023’ highlights that while lending costs are expected to rise, lenders are interested in Australian Build to Rent, which came in second place against the industrial and logistics sector.
The research tapped a mix of 31 local and international banks and non-bank lenders for its H1 survey of Australian commercial real estate lenders.
The majority expect lending costs to increase going forward.
“The majority are willing participants in the industrial and Build to Rent sectors, and we see that continuing to build out over 2023, moving into 2024. The underlying fundamentals of Australia’s housing economy is creating significant opportunities in the Build to Rent sector and the desire by domestic and offshore financiers to fund projects will see this sector continue to grow in the coming years.”
Andrew McCasker, Managing Director (MD) of Debt & Structured Finance, CBRE
There was a moderate dip in the percentage of respondents expressing a desire to grow their commercial loan books – from 44% in October 2022 to 32% when this month’s results were calculated.
Credit margins could continue to see upward pressure of approximately 20bps, with over 40% of lenders indicating such a move over the next three months.
“The overall reduction in lending appetite was most prominent amongst non-banks, although the results show that are still interested in growing their Build to Rent, residential-to-sell and industrial portfolios. Tighter credit conditions are placing undue downward pressure on future supply, which could boost longer-term rent growth across all sectors. This might come under pressure as assets are revalued during the coming two quarters, with a slight uptick in hedging requirements since October last year. Lenders also indicated higher average credit spreads, LTV and ICR requirements for prime office assets compared to their industrial counterparts.”
Sameer Chopra, Pacific Head of Research, CBRE
An Interest Coverage Ratio (ICR) requirement of 1.5x for new investment grade lending was preferred by over 80% of the institutions surveyed, with ICR also the main focus for new underwriting.
