Deutsche Bank sees more headwinds from commercial real estate

[BERLIN] Deutsche Bank expects headwinds to continue in commercial real estate markets, with weaknesses especially pronounced in the US, where leasing activity is slower and vacancy rates are higher than in Europe.

The lender had set aside 664 million euros (S$961.7 million) at the end of last year for expected credit losses from commercial real estate (CRE), a 44 per cent increase from 2023, as the office market continues to struggle, it said in its annual report published on Thursday (Mar 13).

US offices are among the worst-hit parts of the CRE market, as workers stayed home in the wake of the pandemic and higher interest rates made it difficult for borrowers to refinance. According to one study published last year, the value of Manhattan offices has declined by more than 75 per cent from the peak for all but the best offices.

Deutsche Bank has been proactively working with landlords whose loans are nearing maturity, offering amendments and extensions. That contributed to a 19 per cent increase in non-recourse loans classified as having significantly higher credit risk in the portfolio.

“A continuation of the current stressed market conditions could have a further adverse impact on commercial real estate property values and loan-to-value ratios,” according to the lender, which has about 50 billion euros of commercial real estate lending on its books. BLOOMBERG