CREFC sentiment survey: Cautious optimism

Although Europe’s property debt specialists clearly have concerns about market conditions in 2021, the Q1 sentiment survey by industry body the Commercial Real Estate Finance Council Europe indicates many are also cautiously optimistic.

The survey was conducted between 2 January and 26 January, when news of virulent strains of covid-19 vied for headlines against the rollout of vaccines across Europe, led by the UK.

Although few of the survey’s participants believe a return to the market’s regular functioning is imminent, many see opportunities in property lending this year. Some even describe stiff competition to finance Europe’s best assets.

The survey, conducted anonymously, was sent to up to three key contacts at each firm in CREFC Europe’s membership. A range of borrower and lender types, as well as advisory roles, were represented. Around 56 percent of respondents came from UK-headquartered firms while 22 percent came from firms based in continental Europe and 19 percent were from North America-headquartered firms. Lenders in the survey represented an aggregate loan book of at least £180 billion (€204 billion).

Caution is the appropriate mood for 2021

Expert analysis by David Dahan, industry initiatives director at CREFC Europe

Our Q1 survey was conducted against a backdrop of negative news about the severity of the second wave of covid-19 and delays to economic recovery. However, there was also welcome news about vaccines across jurisdictions. Other positives included pre-US election uncertainty being behind us, and the prospect of a less protectionist administration in Washington.

Survey participants, on balance, were swayed more by the good news, and the momentum behind the uptick in positivity in the Q4 2020 survey continued. Negative views were more subdued. Optimism has not fully returned, but an increasing proportion of respondents indicated that sentiment had not changed since Q4.

Across most indicators of UK market conditions, a greater percentage of respondents saw no change. The same was largely true of overall conditions and key indicators of continental European conditions. Loan-to-value and interest-coverage ratios across Europe were considered stable relative to Q4.

Although the US election result and the avoidance of a no-deal Brexit were reflected in more positive views on the political environment, views on the economic environment and real estate market conditions were largely unchanged. Views towards sectors differed, with ‘non-hospitality beds and sheds’ retaining positive momentum. A slight upward shift in risk appetite for asset types and lending strategies was noted.

A year ago, this column flagged the coronavirus as a key risk. That risk has now ballooned, and so cautious sentiment seems appropriate for 2021. Yet although sentiment has yet to turn the corner, it appears close to doing so.