Ten years after the GFC, new data shows that 2017 set a new annual record for non-core real estate loan sales at €104bn, with the emphasis shifting towards Spain and Italy, and away from the UK and Ireland.
With €200bn of remaining net non-core exposures at the current speed of sales and write downs, we can expect two more years of work-out.
The onward sales or recycling of these loans’ associated secondary collateral has offered attractive opportunities for real estate investors and can be expected to do so for some time to come.
The decline of secondary yields and the stabilising secondary to prime yield gap in the last half of 2017 is consistent with the increased investor confidence demonstrated in the non-core loan sale market.
Secondary over prime yield spread still remain at over twice the 2007 level, implying there is room for further tightening over the next few years.
We forecast further improvement in prime property capital values in the 2018-22 period, despite record low yields.
But, secondary property is projected to do better than prime as the yield gap with prime is expected to start tightening as the opportunities of recycling from non-core bank loan sales dry up over the next 2-3 years.
Source : AEW Europe