German banks cool on UK office lending as Brexit chaos bites

German banks’ share of the UK commercial real-estate lending market shrank in the first half of the year as Brexit uncertainty took its toll.

Lenders such as Deutsche Pfandbriefbank AG may not be household names in Britain, but they’ve long been major issuers of loans to office builders and warehouse owners. German lenders accounted for 8% of new loans in the first half, down from 12% a year earlier and 16.7% in the first half of 2016, before the UK voted to leave the European Union, according to Nicole Lux, author of a survey conducted by the Cass Business School.

The UK commercial property market has been blighted by Brexit uncertainty this year, with sellers waiting for clarity after two missed deadlines for the country to leave the EU. That has damped deal-making even as buyers remain hungry for trophy properties and development sites. The wide discount for UK assets compared with other western European countries, combined with a relative lack of new construction, has buoyed demand.

“For German lenders it is really the Brexit problem,” Lux said in a telephone interview. “Other international lenders don’t seem to have the same view, but the German bank head offices want to hold off.”

German banks issued 1.8 billion pounds ($2.3 billion) of loans secured by commercial real estate in the first half, down from 2.6 billion pounds in the year-earlier period, Lux said.

While loan issuance was up 4% in the first half to 23.3 billion pounds, 62% of those loans were related to refinancing, the survey found. Crashing mall values and WeWork’s uncertain impact on the office market are also causing concern among all lenders.

First Published: Oct 16, 2019 18:43 IST