Commercial Property Finance

With a market share of 55 percent Pfandbrief banks are important providers of commercial property finance in Germany.

Development of commercial property financing in Germany

The reunification boom at the beginning of the 1990s and the New Economy euphoria at the end of the 1990s each led to phases in which new lending business increased for several years.

After declining sharply in 2008 and 2009, disbursements have followed a clear upward trajectory since 2010. In 2016, total loans for the construction and acquisition of commercial properties amounted to around EUR 72 billion; since then, the volume of new lending
in this business segment has hovered around this level, with minor volatility. Overall, lending to finance commercial properties and the trend in the volume of construction and transactions in the commercial property market have moved along a trendline similar to that of residential property investments and financing (see Figure 2). This indicates that the average gearing ratio for the financing of properties used for commercial purposes is quite stable and subject to only minor vola-tility. Based on the data available here, the average share of borrowed funds for the period beginning in 2010 is approximately 50%. It should be noted, however, that this calculation also includes segments that are less debt intensive such as modernisation/maintenance.

Investments and transactions in the commercial property market and their financing in Germany, 2010 to 2018 in EUR billions

Sources: German Institute for Economic Research/DIW (construction volumes), vdpResearch based on data from regional expert committees for property valuation (transaction volumes), vdpResearch based on data from lending and insurance industry associations and from the Deutsche Bundesbank (loan disbursements)

Property financing business of vdp member institutions

From 2010 to 2018, new housing loans increased by 6.8% p.a. on average. In 2018, EUR 91 billion of new loans were granted, of which more than 96%, or EUR 87.6 billion, were domestic loans.

Commercial property financing business of Pfandbrief banks, 2010 to 2018

Source: vdp, reporting group: vdp member institutions as at 31 December 2018

In commercial property financing, there is likewise a high degree of stability in terms of the importance of specific types of properties to the overall business. Over the period under review as a whole, 75% to 80% of properties fell into the categories of office or retail/wholesale properties. Approximately half of new business is used to finance office buildings, while another 25% to 30% is used finance retail/wholesale properties. Much smaller percentages of new loans are used to finance hotel buildings (6% to 9%) and industrial and other properties.

vdp member institutions: Structure of the commercial property financing business

Source: vdp, reporting group: vdp member institutions as at 31 December 2018

Foreign business is very important for the commercial property financing business of member institutions of the vdp. Between 2010 and 2018, the percentage of the volume of lending attributable to cross-border property financing hovered around 40%, plus or minus 5 percentage points.

vdp member institutions: foreign commercial property financing by country, shares in percent, values rounded

Source: vdp, reporting group: vdp member institutions as at 31 December 2018