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German Banks Cool on U.K. Office Lending as Brexit Chaos Bites

German Banks Cool on U.K. Office Lending as Brexit Chaos Bites

(Bloomberg) -- German banks’ share of the U.K. 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 U.K. voted to leave the European Union, according to Nicole Lux, author of a survey conducted by the Cass Business School.

The U.K. 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 U.K. 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.

Other key points from the survey:

  • Between 200 and 300 of the U.K.’s 650 shopping malls are “in trouble,” respondents to the survey estimated
  • True demand for London office space is being distorted by WeWork, and lenders and landlords no longer have visibility, respondents to the survey said
  • About a quarter of the loan books of non-bank lenders, excluding insurance companies, are at loan-to-value ratios of more than 70%, in part due to the collapse in value of lower-quality shopping malls

To contact the reporter on this story: Jack Sidders in London at jsidders@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Patrick Henry, Marion Dakers

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