2021-11-08-莱坊-Covid-19_Debt_Update_October_5页_853kb

Knight Frank's 2020 debt market update highlights a market stabilization following summer downtime, with an active market, especially for funds. Brexit uncertainty and new government measures temper growth outlook.

Key trends include lender polarization and a flight to quality, favoring logistics and the private rented sectors. Despite challenges like lower student accommodation occupancy, the sector shows forward resilience. Residential development finance is increasing.

Facing higher provisions for bad debts due to COVID-19, traditional lenders become cautious and selective. This creates a market opening for alternative lenders to fill gaps.

Knight Frank Debt Advisory recorded a notable increase (60%) in development finance requests compared to the same period in 2019/2020.

Simultaneously, over the last two quarters, European and UK banks reported a dramatic rise in loan loss provisioning. This signifies the severe economic fallout from COVID-19, impacting their appetite for certain commercial lending and prompting borrowers to seek alternatives.

The near cessation of government support schemes intensifies banks' pressure for cost containment and selectivity.

Moreover, benchmark rates (LIBOR/ EURIBOR) are falling sharply, recently becoming negative in forward curves. This presents challenges for borrowers with loans featuring zero LIBOR floors, resulting in higher "all-in" effective rates due to negative LIBOR payments. Strategies like forward rate agreements or interest rate caps can mitigate this.

Despite these challenges, Knight Frank maintains a positive outlook, citing increased requests for residential development finance and overall market activity picking up with numerous new deals emerging. The development finance sector specifically shows resilience despite market headwinds.