Based on repeated requests from our clients and the press, we have for the first time analysed the UK’s debt funding gap by property grade. Contrary to the prevailing consensus, our analysis shows that on an individual loan basis grade C properties are impacted just as much (but, NOT more) as grade A properties. However, given the lower absolute aggregate value of grade C relative to the overall stock, the grade C refinancing gap of GBP1.1bn is less than one third of the GBP3.6bn grade A gap for the 2013-14 period.
This lower absolute gap on secondary properties should allow more bank and non-bank lenders to move into lending secured by lower quality properties, as the downside risk for this smaller stock of lower quality buildings is not significantly different than on higher quality properties.
An improving outlook for capital values and new non-bank lending across Europe is helping to shrink Europe’s refinancing gap. Over the last six months the gap in Europe has fallen by 14% to USD74bn. However, progress in deleveraging remains slow in a number of markets, leaving Europe’s gross debt funding gap to USD140bn, a 14% reduction from USD163bn in May-13.
Lending capacity from non-bank lenders remains strong at USD180bn over the three years 2013-15. Non-bank institutional lenders remain the most active in the near term, but we expect strong activity from funds during 2014-15.
The strength of non-bank lending and a reduction in the gross debt funding gap has further increased the surplus across Europe as a whole. This surplus remains concentrated on the UK, France, Germany and Sweden. But, net gaps still remain in a number of markets, including Spain, Italy, the Netherlands and Ireland. Although small on an absolute basis, relative to the total domestic outstanding debt, Ireland continues to show the biggest relative net gap.
Source : DTZ (Groupe UGL)