Industrial and Build-to-Rent Sectors in Focus as Lenders Continue to Eye Commercial Real Estate Opportunities

Australia’s commercial real estate sector remains high on the radar of banks and alternative lenders even as debt costs rise and despite economic headwinds, a new CBRE survey has shown.

CBRE Research tapped a mix of 33 local and international banks and non-bank lenders for its inaugural Lender Sentiment Survey, with more than one-third of the respondents indicating a desire to grow their commercial loan books over the next 12 months.

However, lenders are exercising further caution when it comes to growth sectors and borrowers.

CBRE’s Managing Director of Debt & Structured Finance Andrew McCasker noted, “Despite headwinds, lenders have a continued appetite to support investors with a track record, sound assets and a clear asset strategy. However, the survey has confirmed that banks are taking the opportunity to reset pricing in line with broader economic conditions, passing on rising fund costs through increases to margins.”

Commercial real estate lending in Australia is a $330bn market, which has grown by 65% over the past decade.

The CBRE survey highlights that the domestic banks view their portfolios as being underweight industrial and build-to-rent (BTR) – one of Australia’s fast emerging asset classes – with nearly two-thirds of all survey respondents expressing a desire to grow their industrial exposure.

Will Edwards, CBRE Associate Director, Debt & Structured Finance, said there was scope for greater bank lender involvement in both industrial and BTR amid market confidence in these sectors and their future resilience.

Conversely, the survey found most international banks surveyed considered their portfolios overweight in office and were adopting a more selective approach to the sector.

“Non-bank lenders are helping to plug the gap, with nearly half of the non-bank lenders surveyed indicating a desire to grow their exposure to repositioning opportunities in the office sector. This is potentially due to the opportunities to generate a higher return on investment, particularly in city fringe locations,” Mr Edwards said.

Looking ahead, nearly half of the lenders surveyed expect debt margins to increase by over 20bps in the next three month, which will contribute to increased pressure on loan serviceability.

Preferred asset class for new investment

In the next three months, credit margins on new loans are likely to move: