The Case for European Real Estate Debt

The supportive pricing fundamentals in the European real estate market, and low leverage relative to previous property cycles, suggest the asset class is well-positioned to withstand the impact of the pandemic.

Highlights:

• European real estate debt can offer a stable income return and exposure to loans that are secured by fully diversified ‘hard’ collateral—both providing considerable downside protection. 
• Rising capital requirements for banks are reducing the appetite for real estate lending and opening up the market for non-bank lenders over the mid to long term. 
• When compared to other asset types, property default risk is broadly similar to investment grade bonds and infrastructure, and below high yield corporate bonds.
• Supportive property pricing fundamentals due to long-term low interest rates, coupled with low leverage relative to previous property cycles, suggests the European real estate market is in a position of strength to endure the impact of COVID-19.