DBRS: Overheating in German Commercial Real Estate– Risks Manageable for Banks
DBRS notes that the German Commercial Real Estate (CRE) market shows signs of overheating, but considers the risks for German banks to be contained. A recent commentary published on this topic includes the following highlights:• DBRS sees signs of overheating in the German CRE market as demonstrated by accelerated price increases and tight yields.
• An economic slowdown could dampen the price development, but the current demand and supply situation is unlikely to lead to sudden price moves.
• The risks for German banks as manageable, but high prices, low yields and low lending margins have contributed to an increase in credit risk, and banks have limited cushions to absorb losses.
“Since 2010 prices have increased by more than 60% in the German CRE market. At 6% of total lending, DBRS considers that CRE does not constitute a concentration risk for the German banking sector as a whole. However, margin pressure and overall low profitability leave banks with a limited cushion should credit losses increase.†said Sonja Förster from DBRS Financial Institutions team.
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