Until fairly recently, almost 90% of all Australian commercial real estate lending was carried out by the nation’s four largest banks. However, a combination of financial and regulatory pressures mean the banks have been trending back to pre-global financial crisis levels, creating a multi-billion dollar funding opportunity.

With around A$340bn of outstanding commercial property debt in Australia, each percentage point of pullback by the domestic banks represents a A$3.4bn opportunity.

Major banks’ loan books are still growing however, but at a slower pace. Since 2014 the total commercial lending market grew by A$83.3bn. with only half of this (A$41.4bn) being funded by the major banks.

Foreign banks and a range of non-bank lenders, including pension funds, insurance companies and private equity funds have stepped in. Real estate debt has become a more popular option for institutional investors because it offers a substantial degree of downside protection provided by the ‘buffer’ of the sponsor’s equity and a reasonable yield. These factors are considered particularly important late in the real estate cycle.

Savills Australia has launched a new capital advisory business, following the recruitment of new directors Ben Jackson and Andrew Cottam, who will advise clients on the increasingly fragmented market for securing debt for their projects.

Jackson says: “There has been a systemic shift over the past five years as the big four banks have had more controls placed on their lending activities. This has opened the door to a range of global capital who see the potential for the domestic market to evolve and reflect that of the USA and UK in time.

Cottam suggests that, while the appetite of domestic banks may vary over time, Australia’s real estate debt market will remain diverse. “Although new to Australia, a lot of these inbound groups are already experienced lenders with massive loan books globally. Our market is transparent, so the risk of setting up here is relatively low.”

Further reading:
Savills Capital Advisory

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