The picture for new real estate lending has improved in recent months, according to a new report.

Moody’s has issued an update saying that the commercial real estate market situation is much better now for new loans than it was in 2021 or 2022.

Moody’s said that its default expectation for 2024 loans is very low, with only about 5% anticipated to default, while the risk assessment was around 40% for loans from 2021 and 2022 across Europe.

Ireland was eighth in a Moody’s league table of 18 Western European countries rated by risk, in line with ratings for Spain and Germany. The Netherlands was top, with the UK second and Norway completing the top three.

“The key reasons for such meaningful change are tighter underwriting by banks of new CRE loans, the price correction in CRE property markets that has taken place (in some countries more than others) and robust capital and funding conditions of European banks,” the ratings agency said in its report.

Moody’s added that borrowing conditions in Europe were improving, with the share of European banks that intended to tighten credit standards for CRE over the third quarter significantly less than the second quarter, according to a European Central Bank survey.

“Moreover, European banks are well capitalised and their CRE risks remain in check, which means they are able to continue lending to the sector. Our bank stress test shows most European banks would continue to meet regulatory capital requirements if their share of problem CRE loans increased substantially to 10%, from an average 2.5% in the first quarter this year,” Moody’s added.

Meanwhile, the headline seasonally adjusted BNP Paribas Real Estate Ireland Construction Total Activity Index dipped below the 50.0 ‘no-change’ mark in September, meaning total activity has decreased in four of the past five months.

The monthly construction activity figures showed commercial real estate activity down from 51.1 (where a figure above 50 represents growth) in August to just 47.9 in September. Housing activity returned to growth, on the other hand.

“Rising office vacancy has caused new starts in the commercial sector to dry-up, dragging on overall activity,” BNP Paribas Real Estate Ireland Director & Head of Research John McCartney said in releasing the figures.