Lenders Plan to Deploy More Capital to Real Estate in 2023

November 29, 2022 5 Minute Read

Lenders Plan to Deploy More Capital to Real Estate in 2023

Despite an uncertain global economic outlook and heightened concerns about most real estate asset classes, access to debt capital is not expected to dissipate in 2023.

In fact, according to CBRE’s just-released Canadian Real Estate Lenders’ Report, 93% of lenders plan to expand their loan books by deploying more capital for those looking to buy commercial property in 2023. And 66% of lenders plan to increase their lending capital by an additional 10% next year, compared to the 53% that sought to grow by up to 30% last year.

CBRE’s Canadian Real Estate Lenders’ Report surveys both domestic and foreign lenders to gauge lender confidence in commercial real estate and offer insights for borrowers on what to expect as they look to access financing for real estate investments. Here are five additional takeaways from the survey:

1. Sentiment shifts on office

The office sector recorded the most dramatic shift in lender sentiment, with over half of lenders intending to lower exposure to the asset class in 2023. The shift in lender sentiment on the office sector has been acute and largely stems from the persistence of low office attendance rates in the market. The top three property types with most lender concern are: Office – Suburban, Class B; Office – Core, Class B; and Retail – Regional Malls, Secondary Markets

2. Multifamily stays on top

Multifamily continues to be among the most popular asset classes with lenders, as 54% of those surveyed intend to increase budgets to multifamily in 2023. The other property types with the least lender concern include Retail - Grocery Anchored and Industrial - Modern Logistics

“With the winds of a recession circulating, lenders will lean on the multifamily sector for growth next year,” noted Carmin Di Fiore, Executive Vice President of CBRE's Debt and Structured Finance team. “Industrial is likely to shrug off recession concerns as lenders have no intention of reducing exposure. In fact, many are looking for even more.”

3. Condo financing conditions tighten

With headwinds facing the residential condo sector and potentially heightened risk profiles, 89% of lenders active in the sector have implemented tighter conditions on development financing. The most common adjustment in the current environment has been increased up-front equity requirements for development projects; 67% of lenders will require greater equity in projects going forward.

Other changes include lenders requiring greater deposit with shorter payment schedules and limiting the number of presale assignments. “This could be a game changer for many projects in the pipeline,” says Di Fiore. “The condo market could see a slowdown based on the changing arithmetic.”

4. Alberta is more attractive

Toronto, Vancouver, Montreal and Ottawa remain the top real estate markets of choice for lenders, attracting the strongest levels of lender appetite in 2022.

Sentiment on the Alberta markets of Calgary and Edmonton have significantly improved year-over-year, with more lenders now willing to operate directly in the market. Meanwhile lender appetite for certain secondary markets have declined, namely Waterloo Region and London, Ontario.

5. ESG gathers steam

Environmental, Social and Governance (ESG) issues remain top of mind among lenders, with 86% of those surveyed reporting they either already have or plan to incorporate some form of ESG criteria into their real estate lending decisions.

However, the current economic environment has led to some uncertainty, with 39% of lenders potentially delaying their adoption of ESG criteria and 11% reconsidering the scope of the implementation.

But only 14% of lenders say they have decided to forgo incorporating ESG criteria over the near to medium term.

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