CBRE: Lenders are feeling optimistic ahead of 2020

by Steve Randall05 Dec 2019

A survey of lenders has revealed strong sentiment for commercial real estate lending as the new year approaches.

CBRE’s Canadian Real Estate Lenders’ Report found that most respondents plan to maintain or increase allocations to real estate lending in 2020.

The past three years has seen near-record investment in Canadian CRE and this is boosting confidence among lenders. The survey included both Canadian and international lenders.

Gateway markets are particularly attractive for lenders with most keen to support transactions in markets such as Toronto, Ottawa, Vancouver, and Montreal.

Ottawa gained favour to be the second most-desirable market behind Toronto but Hamilton saw the largest gain, rising 4 points to ninth place. There is also strong interest in London, ON, and Quebec City.

While Alberta’s CRE market has been exposed to the energy sector’s woes, lenders are still interested in lending in Calgary or Edmonton. However, lender activity remains deal-dependent or relationship-specific.

“For lenders looking for stable returns on investment, Canadian real estate stands out amid global uncertainty and persistently low bond yields,” said Carmin Di Fiore, Executive Vice President, Debt & Structured Finance, CBRE Canada. “Lenders remain confident about commercial real estate and are looking to deploy capital into the sector. However, lenders are also cognizant of global risks and some will be slightly more selective with their capital in 2020.”

Recession risk?
Most lenders are not predicting a recession in 2020. But bond yields and yield curve inversion will be closely monitored.

Those lenders directing additional capital to the real estate sector will direct 10-20% net new capital next year. For the few lenders looking to decrease their real estate exposures, it is mostly isolated to retail or land asset classes, where 26.1% and 15.2% of respondents respectively signaled an intention to decrease exposure.

Retail continues to trigger caution among lenders with four of the top 5 asset classes that cause concern for lenders occupied by select retail formats: regional secondary markets, power centres, value-add and entertainment and food services. The exception to this is grocery-anchored properties, in which lenders remain confident.

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