Geopolitics reshaping CRE finance: Banks remain key partner

The "Trendbarometer" survey by Berlin Hyp reveals that ongoing geopolitical tensions, particularly those involving Iran, are significantly impacting commercial real estate financing.

Berlin Hyp

These developments are leading to increased caution and risk awareness in the market, but banks continue to be the most crucial partners for financing.

Geopolitical events are clearly changing the landscape for commercial real estate financing, leading to higher refinancing costs, interest rates, and risk premiums.

The market is reacting with heightened risk awareness, more scrutiny of cash flows and letting, and more selective investment decisions. Many are adopting more conservative strategies, such as longer interest-rate lock-in periods or increased equity contributions.

Despite the challenges, banks are overwhelmingly considered the most important financing partners for commercial real estate, far more so than alternative lenders. This is especially true in an uncertain environment where established banking partners offer expertise and structuring competence.

Reflecting increased scrutiny, banks' processing and decision-making times have become longer over the past 12-24 months, as they conduct deeper risk analysis and assess the sustainability of collateral values.

Sascha Klaus, member of the Board of Managing Directors of LBBW and Chair of the Management Board of Berlin Hyp, commented: “Sustained developments around Iran have long since found their way into decision-making processes in commercial real estate finance. Rising refinancing costs, a higher level of interest rates and additional risk premiums are changing the structure of many financings. We are seeing a market operating in a challenging environment that nevertheless remains pro-active and responsive: risks are being managed more consciously, cash flows and letting are being scrutinised more carefully, and investments are being executed in a much more selective manner.”