DTZ Net Debt Funding Gap Nov 12

Download DTZ Net Debt Funding Gap Nov 12

Post on 28-Apr-2015

42 views

Category:

Documents

2 download

Embed Size (px)

DESCRIPTION

Market study on real estate debt market climate

TRANSCRIPT

DTZ Insight Net Debt Funding Gap European gap to be bridged by 2015, with UK ahead

14 November 2012 ContentsIntroduction Net Debt Funding Gap declines Non-bank lending steps-up DTZ Contacts 2 3 7 12

The UK posted a 55% reduction in its net debt funding gap over the last six

months. This is well ahead of Europe as a whole which posted a 20% decline and the global gap down 17% over the same period. Europe continues to have the highest gap at USD86bn, with the remaining USD31bn in Asia Pacific. As before, we estimate there to be no funding gap in the Americas (Figure 1). In our four step analysis, the net decline occurred despite the negative impact

of new banking regulations. These regulations are estimated to more than double Europes refinancing gap of USD82bn to a gross debt funding gap of USD190bn. France, Germany and the Netherlands are most significantly impacted by these pending regulatory pressures. A dramatic 45% increase in new non-bank lending reverses this regulatory

impact. Over the last six months, we note an increase as well as greater diversity in new non-bank funding. We are now aware of over ten insurance companies and over 30 funds providing debt financing. As before, we expect these groups to provide USD75bn of additional lending capacity over 2012-13. In addition, we estimate that continued growth in corporate bond issuance could provide an additional USD29bn of net new funding. In the near term, we expect two thirds of the non-bank activity to come from

insurance companies. But, the growth in fund raising by fund managers should see a more even balance in lending capacity by 2015. In aggregate we forecast USD225bn of new lending capacity from insurers and funds over 2013-15. With the European net funding gap having shrunk by more than half by the end of 2013, we project that by the end of 2015 a majority of the work-out will have been completed. In the UK this could be earlier. We expect the tail end of the work out to take longer to complete representing 10-15% of the funding gap. This is on the assumption of available non-bank lending, continued low base rates and no further regulatory changes.Figure 1

AuthorNigel Almond Head of Strategy Research +44 (0)20 3296 2328 nigel.almond@dtz.com

Global net debt funding gap, 2012-13, USD bn2520 15 10-55% -17% Asia Pacific

160 120Asia Pacific

ContactHans Vrensen Global Head of Research +44 (0)20 3296 2159 hans.vrensen@dtz.com

-20%

80EuropeEurope

5 0 May Nov May Nov May Nov UK (LHS) UKSource: DTZ Research

40 0 EuropeGlobal Global

DTZ Research

Net Debt Funding Gap

IntroductionThis is the fifth issue of our Global Debt Funding Gap report and provides an update on our previous analysis released in May 2012. Compared to our previous report, the amount of debt outstanding in each market remains unchanged, based upon data from our Money into Property database at the end of 2011. Since our last report we have made adjustments to some of the inputs based on discussions with our research and deal teams locally and also updated information provided in the year-end 2011 De Montfort University survey on UK 1 commercial property lending . Our methodology for estimating the debt funding gap remains unchanged. As before, it involves a detailed analysis which takes into account: Vintage of outstanding loans Duration of loans by vintage Loan to value ratios by vintage Historic and future changes in collateral values, and Impact of loan extensions

Box 1: Our four-step approach to estimating the net debt funding gapSince we first released the debt funding gap in March 2010, we have adapted our approach to the changing market conditions and to reflect new and better information. Currently, our analysis involves the following four steps: 1. 2. 3. 4. Estimate the refinancing gap based on refinancing of maturing debt vintages Add the impact of bank regulations to provide the gross debt funding gap Estimate the positive impact of non-bank lending sources Subtract the non-bank debt from the gross gap to estimate the net debt funding gap

In addition across Europe, we have updated our analysis to take account of the regulatory impacts as well as new nonbank lending. We use a four step process in calculating the net debt funding gap (see Box1). Where data permits, inputs vary for each individual country. A detailed step-by-step methodology is available in the 2 appendix of our May 2011 report , and our process of dealing with the regulatory impacts is outlined in our May 3 2012 report .

Although 2012 is now nearly past us, we continue to analyse over the period 2012-13 to enable a like for like comparison of the regulatory impacts. The latest available estimates provided by the International Monetary Fund (IMF) only cover the 4 period to end 2013 . This limits our ability to move forward with an updated 2013-14 estimate at this time.4

Global Financial Stability Report, Restoring Confidence and Progressing on Reforms, October 2012, IMF

1

The UK Commercial Property Lending Market Research Findings 2011 Year End, De Montfort University 2 Global Debt Funding Gap, Smaller But Pressures Remain, 5 May 2011 3 Global Debt Funding Gap, new non-bank lending offsets EBA impact, 11 May 2012

www.dtz.com

DTZ Insight

2

Net Debt Funding Gap

Net Debt Funding Gap declinesUKs 55% reduction leads 20% European decline The UKs 55% reduction leads a 20% decline in Europes total net debt funding gap over the last six months. The global net debt funding gap shrank a more modest 17% to USD117bn over the same period. Europe continues to have the highest gap at USD86bn, with the remaining USD31bn is in Asia Pacific. As before, we estimate there to be no funding gap in the Americas (Figure 2). Four-step approach considers all relevant perspectives In estimating the net debt funding gap, we run our analysis through the following four step process. First we estimate the refinancing gap. This estimate uses a detailed vintagebased refinancing analysis considering maturing debt and new debt available to replace it. Second we add the impact of pending bank regulation to estimate the gross debt funding gap. Third, we estimate the amount of non-bank finance available. Finally in the fourth step, we subtract the new non-bank lending to obtain the net debt funding gap. Please refer to Figure 3 Step 1: Deteriorating capital value outlook pushes refinancing gap higher Globally the refinancing gap has increased by 9% to USD118bn over the period 2012-13. The majority of this increase was in Europe as the refinancing gap grew 7% from USD74bn to USD82bn. The refinancing gap in Asia Pacific grew 2% to USD34bn. There remains no gap in North America. Globally, Japan has the largest refinancing gap at USD35bn. This is followed by the UK and Spain, both at USD25bn. Ireland has the next largest refinancing gap at USD9bn with Italy at USD8bn. France and Germany have gaps of just USD3bn each (Figure 4). Both the UK and Spain saw increases in their refinancing gap. This partly relates to a reduction in the LTV at refinance, compared to our previous assumption. But, this is also driven by a deterioration in the outlook for capital values. This is particularly the case in Spain, whose refinancing gap grew by over USD6bn. Italy also saw its gap grow by over USD2bn, again reflecting a deterioration in the outlook for capital values.

Figure 2

Global net debt funding gap, 2012-13 USD bn2520 15 10-55% -17% Asia Pacific

160 120Asia Pacific

-20%

80EuropeEurope

5 0 MaySource: DTZ Research

40 0 Nov May Nov May Nov UK (LHS) UK EuropeGlobal Global

Figure 3

Four-step approach to estimating net debt funding gap200 150100

2

3

50 0

1 Gross 1 debt funding gap Non-bank 2 finance

4Net debt 3 funding gap

Source: DTZ Research

Figure 4

Step 1:Refinancing gap by country 2012-13 USD bn4030

20 100

May 12Source: DTZ Research

Nov 12

www.dtz.com

DTZ Insight

3

Net Debt Funding Gap

Step 2: Pending banking regulations more than doubles Europes gap to USD190bn Allowing for the regulatory impact (see Box 2), Europes USD82bn refinancing requirement more than doubles to a USD190bn gross debt funding gap (Figure 5). The UK remains the most exposed, with a gross funding gap of USD36bn, followed by Germany and Spain at USD27bn and France at USD26bn. As we highlighted previously some markets with relatively low refinancing gaps are impacted more by regulation. Of the major markets, the Netherlands is most exposed with its refinancing gap rising from USD0.2bn to a gross debt funding gap of USD9.9bn. Sweden is also exposed with its gap rising from USD0.8bn to a gross USD5.2bn. Ireland remains the only market which is not impacted by the regulation based on our analysis. Of the major markets, Spain only has a 10% hit due to regulation. Of course there are other pressures building on the Spanish banking system (see Box 3 for an update on Spain). Increase of 4% in gross debt funding gap based on regulatory impact The gross debt funding gap has increased in all major markets. Overall, across Europe the gross funding gap has risen 4% from USD182bn in our May-12 estimate to USD190bn now (Figure 6).

Figure 5

Step 2:European Gross Debt Funding Gap, 2012-13, USD bn4030

200150

20 100

100 500

Refinancing gapSource: DTZ Research

Regulatory impact

Figure 6

European Gross Debt Funding Gap, 2012-13, USD bn40 30 2010

200 150 10050

0

0

May 12Source: DTZ Research

Nov 12

Box 2: Assessing the regulatory impactWe have updated our analysis to take int