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Residential assets dominate demand for European real estate debt financing

20 Apr 2022

by N/A

Residential real estate assets are continuing to dominate the European Debt Market, but the first quarter of 2022 saw an increase of activity in the office and retail sectors compared to Q4 2021, according to the latest data released by FinLoop.

An analysis by the European Fintech Company of the Year reveals that over 48% of the €1.4 billion lending requests and agreements submitted via the platform over the first three months of 2022 were for residential properties and projects, including student and senior living accommodation.

When you add the loans requested for hotels to the data on residential, the number of loan requests is even higher and confirms the immense appetite for living accommodation assets, said FinLoop’s chief executive, Dr Thomas Schneider.

Despite a significantly lower number of loan applications compared to residential, the monetary value of requests, submitted for office and retail assets via FinLoop, saw an increase in Q1 compared to the previous quarter.

While the figures reveal that over 27% of the total value of loan requests submitted via FinLoop in Q1 related to residential assets, including student accommodation, the value of requests relating to retail assets increase by 14.3 percentage points to 18.9% of the total volume recorded and for office assets the figure for deal volume reached 21.7% in Q1, compared to 14.5% in Q4, added Schneider. Many assets are developments or those requiring CapEx, perhaps with an eye on improving sustainability.

The levels of demand confirm a growing optimism across Europe that the worst of the pandemic is now behind us. Based on the ESG criteria that lenders on the platform are requiring borrowers to meet, it is also clear that the real estate industry is responding to the demand, and the expectation of consumers that new-build assets will meet the highest sustainability standards, he said.

The increasing use of ESG criteria led FinLoop to undertake a study, during the second half of 2021, to assess the increasing focus on environmental, social and governance and its impact on property investment and lending.

What became apparent is that finance requests for real estate projects made via FinLoop were increasingly being rejected by lenders due to concerns about ESG issues, said FinLoop’s co-founder, Nicole Lux.

The filtering of loan requests against ESG criteria has continued and is a progressive influence upon the market activity, and borrowers who ignore the new paradigm will potentially miss out on finance opportunities and could face higher borrowing costs, she added.

The ability to filter loan applications by ESG criteria is being implemented by FinLoop, particularly for those businesses who have integrated the debt management platform as a ‘white label’ product within their business operations.