Deutsche Bank CEO says hard times ahead for commercial property

DEUTSCHE Bank chief executive officer Christian Sewing said commercial real estate is facing tough times in the years ahead as higher interest rates roil the market.

The asset class “will actually go through more difficult timing for the next couple of years”, Sewing said. That is because of higher rates and a trend for increased home office work in the wake of the Covid pandemic, he added.

Sewing’s comments underline the tough conditions that lenders are facing after the rate hikes by central banks around the world have ended the preceding boom decade. Many real estate developers are facing tight credit conditions and banks have to weigh carefully whether to renew loans to now-risky clients or cut their exposure, potentially pushing the firms into insolvency.

Banks are also facing tougher scrutiny from regulators over commercial real estate as some worry that the money set aside by lenders for potential credit defaults in the market are too low. The European Central Bank has reached out to property valuers to assess whether their estimates are too optimistic, Bloomberg reported earlier this week.

Deutsche Bank’s investment banking division had about 19 billion euros (S$27.5 billion) in commercial real estate loans outstanding at the end of the second quarter. It is “well-positioned to withstand downside risks” given its “conservative underwriting standards and risk appetite frameworks limiting concentration risk”, it said then.

The risks faced by banks in commercial real estate “depends on your underwriting principles”, Sewing said. “And there I feel very comfortable with what we have done.” BLOOMBERG