Real Estate

Debt & Capital Advisory

EMEA Marketbeat Q1-2024
 Real Estate Debt & Capital Advisory I EMEA Marketbeat Q1-2024

Macroeconomic outlook
Inflation outlook
Inflation* (one year average rate of change)
Europe’s economic outlook continues to be
characterized by a notable variation between countries. 10,0%
8.1%

The subdued global economy, restrictive monetary 8,0%

policy and continued impact of energy and food price 6,0%

shocks have stalled growth in economies such as 4,0%

2.4%
3.0%

1.6%
Germany and Italy, which have been stagnating for more 2,0% 0.8%
2.6%

than a year. In contrast, economies such as Denmark 0%

are showing greater resilience supported by positive

2023-03 2023-04 2023-05 2023-06 2023-07 2023-08 2023-09 2023-10 2023-11 2023-12 2024-01 2024-02 2024-03

consumer sentiment and improved income and output Inflation Europe (HICP)* Inflation UK (CPIH) Construction index (% change yoy)

expectations while the UK and Ireland are showing

signs of recovery. Overall, the outlook across Europe is Note: (*) The Harmonized Index of Consumer Prices (HICP) is used in the analysis and is a measure of
inflation in the European Union (EU).
expected to improve as inflation continues to fall and
interest rates come down.

Financing market outlook Euribor +3M, ESTER & SONIA 3M (one year evolution)

6.000%
5.191%
3.899% 3.892% 5.191% 2.659% 5.000%
3.892%
4.000%
3.899%
3.000%
ESTER** Euribor +3M** SONIA 3M** 5Y Euribor swaps**
2.000%
Increasing sentiment that central bank rates have now 1.000%

peaked and are likely to begin falling in the coming 0%

months has led to growing positivity in Europe’s real 2023-03 2023-04 2023-05 2023-06 2023-07 2023-08 2023-09 2023-10 2023-11 2023-12 2024-01 2024-02 2024-03

estate markets. Despite this, the impact on lending ESTER EUR3M SONIA 3M

activity has been nuanced. In countries such as Poland

and the Netherlands, more certain rate environments 5Y Euribor & SONIA swap rates

together with the low number of transactions last 6.000%

year, have resulted in renewed appetite from lenders. 5.000%

In other European markets, commercial real estate

3.768%
4.000%

lending remains constrained, with negative experiences 3.000%

2.659%
2.000%
in the US and high-profile collapses in Europe leading 1.000%
to greater caution from lenders who remain highly 0%

selective in terms of the sponsors and business plans 2023-03 2023-04 2023-05 2023-06 2023-07 2023-08 2023-09 2023-10 2023-11 2023-12 2024-01 2024-02 2024-03

that they will fund. 5Y Euribor swap rate 5Y SONIA swap rate

Note: (**) Numbers as of the end of March

Investment market outlook Prime yields levels by asset class (Europe)

The sharp rise in government bond yields continues 7.00%

6.25% 6.45%

to impact the real estate market: the need of investors 6.00%

6.00% 5.75%

to obtain a premium above the risk-free rate of return 5.00% 4.74%

5.18%
4.50%
5.41%

5.00%
coupled with an unwillingness of many prospective 4.00% 4.30%
4.38%
3.96%
4.00%
vendors to trade at the pricing implied by this has 3.00%
3.50%

resulted in a bid-offer spread that remains difficult to 2.00%

2.50%

bridge. However, while transaction volumes remain low 1.00%

compared to historic standards, the market has been 0%

showing signs of recovery. Buyers and sellers are in Offices prime yields Logistics prime yields Retail prime yields Residential prime yields Hotels prime yields

some cases starting to find common ground due to a Min Average Max

variety of factors including: cautious optimism regarding

interest rates, increasing pressure for some owners to Sources : Eurostat, Refinitiv, Statitsta, Bank of England Database
sell due to refinancing difficulties, or the need to raise
cash to fund redemption requests from fund investors
or reduce leverage.

Markets drivers

Evolution of interest rates Geopolitical tensions Inflation

On the 25th of January the ECB Governing The global economic outlook and Ongoing instability in the Middle East is
Council decided to leave the three key geopolitical tensions continue to influence continuing to impact energy prices, global
interest rates (refinancing operations, market sentiment. The macroeconomic output and the overall price level, thus
marginal lending and deposit facility) environment remains fragile, with impacting Bank of England and European
unchanged at 4.50%, 4.75% and 4.00% heightened uncertainty due to the ongoing Central Bank policy.
respectively. conflicts in Ukraine and in the Middle East.
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 Real Estate Debt & Capital Advisory I EMEA Marketbeat Q1-2024

Real estate financing trends

Trends in financing products Equity
The bank financing gap for borrowers remains in Q1-2024. In fact, the risk attributed by banks to real
estate financing has increased as demonstrated by increasing loss given default rates and subsequently Senior debt

the lower leverage granted. Therefore in this market, equity continues to be the financing product of Whole loan
choice. Whole loans, especially in refinancings where LTVs have increased or where banks have become
too defensive to finance, are more attractive to borrowers as they can provide them with the liquidity Mezzanine debt
they need. Real estate borrowers are also slowly starting to adjust to increased financial guarantee Junior debt
requirements from lenders and the simultaneous devaluation of real estate values is leading to an
adjustment of borrowers’ expectations and business plan calculations.

Trends in financed purpose Refinancing

With reduced transaction volumes in the commercial real estate markets and lenders being increasingly
selective when taking on new borrowers, refinancing is currently the highest trending activity among Development finance

lenders. The aim is often to provide a bridge to sale – capital cover for a period of 2 to 3 years with Asset acquisition
borrowers hoping that the fall in interest rates expected later this year precipitates a tightening of yields
and the ability to achieve a higher price for the asset in the future. This trend reflects an adaptation to Portfolio acquisition
changing economic conditions, with a marked preference for security and stability in the short term, Corporate financing
while waiting for the tide to turn. At the same time, lending to finance asset acquisition has started to
pick up in some markets, particularly Spain and Ireland, where housing demand and public investment
are underpinning residential development.

Trends in financed sector Residential

‘Beds and sheds’ continued to be the main lending trend in Q1. Lender interest in BTR (build to rent)
and PBSA (purpose-built student accommodation) remained strong as well as demand from lenders Hotels

for hotel opportunities, particularly in the high-end and luxury segments, has also been sustained, with Logistics
robust performance despite economic fluctuations. In Spain, this has been particularly pronounced
with lenders showing strong interest in financing both existing assets and capital expenditure plans Offices
in the hotel sector. Similarly, the logistics sector continues to attract significant interest from lenders, Retail
especially when supported by long leases with blue chip occupiers. On the other hand, many lenders are
keen to reduce exposure to offices and retail due to the challenges facing these sectors.

Deloitte’s sample of credentials for the quarter

Residential Residential Hotels

Gem Construction Marstead Living Limited Confidential

Amount raised : Amount raised : Amount raised :
Confidential Confidential €52.5m

Debt : Debt : Debt :

Senior development financing Whole loan Senior debt

Lender : Lender : Lender :

Bank of Ireland Federated Hermes Private Credit Dutch Bank
Deloitte Ireland advised GEM Construction, Deloitte UK advised Marstead Living Ltd on Deloitte Netherlands advised a confidential
raising development financing to deliver securing a land loan to fund the acquisition client on financing an apartment hotel
300 new affordable purchase and social of an 18-acre development site in London. redevelopment and investment project
units under license agreement for a Local The site has planning permission for a located in Amsterdam.
authority in West Dublin. £260m 175 home retirement community.

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 Real Estate Debt & Capital Advisory I EMEA Marketbeat Q1-2024

Real estate financing sectorial trends and key indicators

Financing
Offices Countries Senior LTV Trends Senior Trends
Levels debt margins

While lenders are still financing offices, they are Denmark 55-60%  80-120 bps 
increasingly selective, particularly with regards to France 50-55%  210-270 bps 
valuation risk and stabilization. As a result, extra scrutiny Germany 50-55%  140-160 bps 
is being placed on energy performance, WAULT and Ireland 45-55%  250-300 bps 
tenant strength considerations and locations outside
Italy 40-50%  250-350 bps
CBDs are increasingly difficult to finance. Projects that
lenders and investors are looking at most are change-of- Poland 55%  200-275 bps 

use and refinancing deals. In Germany, where the market Spain 50-60%  200-250 bps 
has been affected by the default of key players (e.g., The Netherlands 50-55%  225-325 bps 
Signa Group), the transactional market is increasingly United Kingdom 55-60% 250-305 bps
characterized by asset sales by distressed companies,
with a particular focus on high street assets. Source : Deloitte based on a market sounding

Financing
Residential Countries Senior LTV Trends Senior Trends
Levels debt margins

The residential market continues to show robust Denmark 50-55%  80-120 bps 
fundamentals. The expectation of further rental France 50-55%  160-200 bps 
growth ahead, as well as the shortage of newly issued Germany 60-65%  100-120 bps 
construction permits for residential development in
Ireland 50-60%  225-250 bps
various European regions putting upward pressure on
Italy 40-60%  250-350 bps 
rents, has led to purpose built residential for rent (e.g.,
PBSA and senior housing) emerging as one of the most Poland 70%  200-325 bps 

sought-after asset classes for investors – particularly Spain 50-65%  200-250 bps 
in France and the UK where there has already been The Netherlands 60-70%  175-250 bps 
strong rental growth. The residential sector is expected United Kingdom 55-65%  205-280 bps 
to continue to show resilience given the low supply,
but investors must be wary of new rent regulations in Source : Deloitte based on a market sounding

some jurisdictions and their impact on cashflows. The

anticipation of an interest rate decrease, together with
the subsidy programs in some countries (e.g., Germany),
are also strongly supporting investment and lending
demand.

Financing
Retail Countries Senior LTV Trends Senior Trends
Levels debt margins

Most European retail markets are gradually recovering Denmark 45-55% 80-120 bps 
from a period of stagnation or decline as the markets France 50-55%  180-230 bps 
adjust to changing shopping habits. In these markets, Germany 45-55%  170-190bps
lenders are favoring prime to luxury locations and
Ireland 50-55%  250%-325% 
assets exhibiting strong performance, while secondary
Italy 30-50%  300-350 bps 
shopping centers are experiencing difficulties with low
market appeal. Lenders are paying close attention to the Poland 65%  220-300 bps 

core characteristics of retail assets, with an accessibility Spain 50-60%  300-350 bps 
and consumer experience focus (e.g. good access to The Netherlands 50-60%  225-350 bps 
public transport, restaurant areas, etc.). In Germany, United Kingdom 55-60%  240-330 bps 
the retail market in high street locations remains under
severe pressure, with prime rents falling sharply, and Source : Deloitte based on a market sounding

asset valuations following.

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 Real Estate Debt & Capital Advisory I EMEA Marketbeat Q1-2024

Real estate financing sectorial trends and key indicators

Financing
Logistics Countries Senior LTV Trends Senior Trends
Levels debt margins
Lenders’ appetite for logistics assets is still strong, Denmark 55-60%  80-120 bps 
although investment and financing demand is slightly France 50-55%  195-245 bps 
lower than in recent years. Most banks are showing a Germany 45-55%  170-190 bps
preference for large logistics assets and last-mile logistics
Ireland 50%  225-275 bps 
assets (e.g. Ares Management acquired a logistics
Italy 40-60%  225-300 bps 
portfolio in France for 310M€, the biggest transaction of
the last 4 years in France) with investment grade tenants Poland 70% 200-300 bps 
and are paying particular attention to the certification of Spain 50-60%  250-300 bps 
the assets, as ESG plays a prominent role in the banks’ The Netherlands 50-60%  175-275 bps 
decision-making process. The stabilization of yields,
United Kingdom 55-65%  205-285 bps
which has already started in some countries such as
France and Spain, could boost investor’s confidence in Source : Deloitte based on a market sounding

the asset class and create positive momentum for the

transaction market.

Financing
Hotels
Countries Senior LTV Trends Senior Trends
Levels debt margins
Lenders are showing a strong appetite for hotel assets Denmark 50-60% 80-120 bps 
in all European countries. The sector is benefiting
France 60-65%  200-250 bps 
from higher overall EBITDAs as hotels have been able
Germany 50-60%  150-170 bps 
to increase their room rates and occupancy rates
have steadily improved. As in other sectors, there is Ireland 50-60%  250-300 bps 

a strong focus on location, luxury and sustainability Italy 40-60%  250-350 bps 
metrics. In France, the hotels’ financing market has been Poland 50%  280-380 bps 
particularly supported by the increase in investment Spain 50-65% 200-300 bps 
volumes (+0.6M€ y-o-y) and large transactions (e.g., Netherlands 50-60%  200-300 bps 
Pullman Tour Eiffel 330M€ and Dame des Arts 110M€).
United Kingdom 55-65%  200-285 bps
The value-add market with repositioning opportunities
is also attracting strong interest from lenders and new Source : Deloitte based on a market sounding
international entrants. However, there are still some
challenges, particularly in Germany and Ireland where
a sizeable bid-offer spread illustrate that the hotel
market is still lagging behind the transaction volumes of
previous years.

France / French team’s view

The real estate financing and investment market is showing very timid signs of recovery. French lenders still prefer to serve their existing client base,
rather than acquiring new clients, while the modest decrease of banks’ liquidity costs has allowed some banks to offer slightly better financing
conditions to borrowers. The French investment market has been stimulated by few notable transactions (with volumes above 200M€) which
represented more than a quarter of the transaction volume of Q1 (e.g. Hotel Pullman Tour Eiffel, Ares logistics portfolio, etc.). Hotels remain an
asset of choice for lenders, especially when the acquisition is carried out by an operating buyer. As liquidity and cashflows have been under lender
scrutiny, managed residential assets such as PBSA or senior housing have been lenders’ favorite residential asset. On the logistics side, investors
are particularly showing appetite for last-mile-logistics, while lenders are getting more cautious. High street retail asset transactions are in a state
of inertia, as valuations have fallen and sellers are unwilling to sell their assets at a lower price for the moment. As for retail parks, institutional
investors and property companies are willing to sell their assets, but are struggling to find buyers. There is a strong demand from borrowers to
refinance offices, but lenders are still highly selective on this asset class, with lower leverage being offered.
Hassen Ouartani

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 Real Estate Debt & Capital Advisory I EMEA Marketbeat Q1-2024

Meet the team

The European Debt & Capital Advisory team assists you in your debt and
fundraising processes through a large European lenders and investors’ network
thanks to an in-depth expertise of the financing and investment market.

France Netherlands
Hassen Ouartani Michael Vuijsje
[email protected] [email protected]
+33 1 5837 0412 +31 882860662
Director Director
Head of Debt & Capital Advisory Real Estate Advisory
Real Estate & Hotels Advisory

Germany Denmark & Nordics

Joerg Schuermann Morten Husted Permin
[email protected] [email protected]
+49 69 75695 7687 +45 61 55 26 70
Managing Director Partner
Head of Real Estate Corporate Head of Debt & Capital Advisory
Finance

Ireland Italy
Daniel Lockley Angela d’Amico
[email protected] [email protected]
+353 1 417 8835 +39 0283322775
Partner Partner
Real Estate Finance Head of Real Estate Advisory

United Kingdom Belgium

Chris Holmes Sebastiaan Preckler
[email protected] [email protected]
+44 20 7007 2873 +32 2 800 28 35
Partner Partner
Head of Real Estate Debt Head of Debt & Capital Advisory
Advisory

Luxembourg Poland
Elena Petrova Adam Pankowski
[email protected] [email protected]
+352 45145 3065 +48 225110372
Director Assistant Director
Debt & Capital Advisory Debt & Capital Advisory

Spain
Jose Ignacio Navero
[email protected]
+34 918229261
Manager
Financial Advisory
Corporate Finance

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