Among the findings from CREFC Europe’s Q1 sentiment survey, conducted between 10 January and 31 January, was an improved outlook on offices – a sector about which lenders and borrowers are generally cautious.
“Offices started shooting back up to a more positive view,” says David Dahan, industry initiatives director at the property finance industry body, referring to the sentiment index score which tracks respondents’ views. “It’s the highest it has been since the end of 2021.”
An increasing emphasis on a return to the office by corporate companies may be supporting the positivity, adds Dahan. However, he says the perspective on the sector remains binary, with a far more positive outlook for assets in prime versus secondary locations. “The positive mood around offices may be dominated by those more exposed to prime, which is maybe a bias in the survey results.”
“Retail continues to climb upwards nicely,” continues Dahan, which he said was reflected in discussions about sector performance at a CREFC Europe event in February. “Other sectors are pretty much flat,” he adds, referring to similar sentiment scores compared with Q4.
While views on individual sectors differed, Dahan notes a slight drop in sentiment in responses to big-picture questions in the survey. “If you look at the score for overall market conditions, it is slightly down compared with the last three quarters,” he says.
Volatile backdrop
The sentiment index scores for the macropolitical environment, macroeconomic environment and real estate fundamentals were all down compared to the previous survey. Dahan believes the volatile political backdrop may have played a role.
“Macro conditions have been impacted by Trump taking power in the US, while the UK picture may be influenced by a slow and stumbling start by the Labour government. There’s also a German election coming up, and ongoing French political instability – for a few weeks, France was borrowing at a higher rate than Greece. That’s quite a powerful indicator.”
CREFC Europe also polls respondents’ views on the most attractive points on the risk curve, for type of lending, type of asset, and location of collateral. Dahan notes a subtle change.
“Over the past several quarters, we’ve seen more of a pull to the lower end of the risk spectrum. This quarter, we see a subtle pull to the middle of the risk-return curve, particularly for the type of asset and lending strategy, so people are seeing the opportunity more towards the middle of the curve. People are coming out of the low risk – and the high risk – and converging nearer the middle.”
Overall, however, respondents’ sentiment towards risk continues to be weighted towards the lower end of the spectrum, Dahan notes, as market participants operate amid still uncertain conditions.
Describe in a few words how you feel about the market
“Difficult and crowded with desperate lenders”
“Optimistic and expecting much more volume”
“An oil tanker turning in a bowl of soup”
“Cap rate compression delayed as rates stay higher”
“Still cautious but people want to do business, which feels better than last year”
“Continues to be hampered by global macroeconomic uncertainty coupled with unrealistic value expectations”
“Improving, but this needs to be evidenced by more transaction activity”
“Lots of dealflow and very competitive”
“Slowly improving, but rates and politics could derail it”
“Light at the end of the tunnel. Good time to buy”
