CREFC Europe sentiment survey: Optimism grows over economic outlook

David Dahan, industry initiatives director at CREFC Europe, admits he was surprised by the results of the property finance industry body’s Q1 2024 sentiment survey. “Despite the uncertain geopolitical environment, indicators in the survey were on the upswing,” he says. “My theory is that the improvement in sentiment is grounded in the economics. There is an expectation we will have a soft landing and interest rates have probably peaked, even if they remain high for longer than anticipated. All of that is creating a positive buzz.”

The sentiment index score for a key measure in the survey – overall market conditions – went into positive territory in Q1, after having been below a score of zero since Q1 2022. “There was quite a strong swing from the Q4 score of -0.32, to 0.15,” adds Dahan.

The sentiment index score tracking respondents’ views on the economic environment went into positive territory for the first time since Q3 2021. The survey was conducted between 4 January and 31 January, prior to February’s news that the UK had entered recession. During the survey period, there were widespread expectations that central bankers would hold rates steady, which was the case with the US Federal Reserve on 31 January and the Bank of England on 1 February.

“Outside of that economic environment, we are heading into an era of huge uncertainty because there are so many elections this year, including the European Parliament in June,” says Dahan. “Also, the consequences of geopolitical uncertainty could be more inflation risk, meaning more interest rate risk. But that concern does not seem to have come through in the survey results.”

Respondents’ views towards the prospects for property markets’ performance are improving, the survey results also show. The sentiment index score for views on real estate fundamentals only just remained in negative territory, following a notable uplift from the previous quarter. Dahan notes it is rare for respondents to report a more positive outlook on real estate fundamentals. “In the five years we have been running the survey, we have only had five quarters in which the index score has been positive.”

Views on what is the right amount of risk to take, in terms of lending strategy, asset location and asset type, shifted slightly, indicating respondents believe slightly more risk is justified. “There is a slight perspective that risk will be rewarded a bit more, but it is not a big swing in sentiment on that point,” Dahan says.

He notes that comments left by respondents – some of which are printed here – suggest they see a similar set of conditions but view them either positively or negatively according to the strategy they are pursuing. “Some of the positive views reflect that conditions are positive for the respondents’ business, maybe because distress creates opportunities for them. So, the negatives and positives do not necessarily reflect different views on conditions; rather, the same conditions viewed through a different lens.”

Describe in a few words how you feel about the market

“Positive for more activity in distressed markets”

“Still too uncertain to call the interest rate environment as inflation looks stubbornly high”

“Outlook improving but based solely on sentiment rather than activity”

“At a turning point”

“Cautiously optimistic – the new cycle is opening up opportunities”

“Some sectors close to the bottom offering early-stage opportunities for debt and investment”

“Still heavily dependent on interest rates”

“Gloomy due to geopolitical uncertainty”

“Improving, still a lot of uncertainty”

“There are sectors and jurisdictions that are doing well, and these are getting more competitive”