The proposed Federal Budget clamp down on international student arrivals has failed to dampen lender interest in Australia’s student accommodation sector, a new CBRE survey has shown.
However, in a surprise shift, the build-to-rent sector has dropped from second to fourth on the list of assets lenders are favouring, despite ongoing investor interest in the asset class.
CBRE Research tapped a mix of 40 local and international banks and non-bank lenders for its H1 2024 Lenders Sentiment Survey.
At a topline level, the results highlight that the appetite to lend over the next three months has increased, with 58% of respondents wanting to grow, and none wanting to decrease, their commercial real estate exposures.
The industrial & logistics sector continues to be heavily favoured, supported by record-low vacancy rates and strong rental growth.
However there have been some significant shifts in how lenders’ view other asset classes, with build-to-sell leapfrogging build-to-rent to be the second most favoured asset class.
For the first time, lenders were also given the opportunity to separately rank student accommodation, healthcare assets and data centres, which were previously bucketed together as alternatives.
This has highlighted the strength of interest in student accommodation, which ranked 3rd on the list of preferred asset classes, with healthcare and data centres being the least favoured, behind stabilised office assets.
In another shift, the survey has also highlighted a reduced appetite from offshore lenders in Australian opportunities.
CBRE’s Managing Director of Debt & Structured Finance Andrew McCasker noted, “We believe this is due to offshore banks focusing on home markets to manage local exposures. Australia continues to be well supported by domestic banks and non-bank lenders and while there is some caution when it comes to certain asset classes, we expect lender appetite will keep growing as interest rates stabilise and asset values begin to reflect market sentiment.”
In relation to the sector-based findings, CBRE Associate Director, Debt & Structured Finance, Will Edwards, said almost one quarter of surveyed lenders had nominated student accommodation as one of their top-two preferred asset classes.
“Strong demand fundamentals and the fact that Australia is relatively undersupplied when it comes to purpose built student accommodation is underpinning lender interest in this sector,” Mr Edwards said.
“The other shift has been the rising interest in build-to-sell projects. While interest in this sector has been subdued over the past 18 months, the market is resetting to accommodate increased building costs.”
Other key survey findings include:
• There is no clear consensus view amongst institutions and surveyed lenders as to whether rates have peaked, and their expected trajectory over the next 12 months.
• For new build-to-sell construction lending, the largest cohort of lenders require 80%-100% of debt funding covered by pre-sales, which is likely to continue to dampen future supply.
• While lender preference for office assets remains subdued, there was a moderate uptick in interest in office repositioning opportunities, particularly amongst non-bank respondents, which are increasingly seeing this provide an attractive value proposition.
• A slight uptick in covenant breaches is anticipated over the next six months, given continued pressures on asset valuations.
• Leverage is the key concern impacting lender appetite for refinancing. Other key variables include asset type and asset grade, highlighting the continued bifurcation both between and within key commercial asset classes.
• Notably, 13% of surveyed lenders identified environmental credentials as a key variable when it comes to refinancing, highlighting the growing importance of ESG in Australia’s commercial real estate sector.
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