Europe’s real estate finance specialists have had time to consider the impact of the pandemic on their market. This means the results of the latest sentiment survey by the Commercial Real Estate Finance Council Europe are not quite as bleak as those in Q2.
The industry body’s Q3 survey was conducted between 26 June and 15 July when lockdown restrictions were being eased across most European countries.
The return of some semblance of normality may have buoyed the 30 percent of respondents who said conditions were ‘moderately better’ than three months previously. However, given that 14 percent saw no change and 43 percent saw conditions as getting worse, the results demonstrate that covid-19 remains a major cause for concern across the sector.
The survey, conducted anonymously, was sent to up to three key contacts at each firm in CREFC Europe’s membership. A wide range of lending strategies and lender types, as well as advisory roles, was represented.
Even the industry’s optimists are cautious
Expert analysis by David Dahan, industry initiatives director at CREFC Europe
Our Q3 sentiment survey was conducted as most of Europe was emerging from lockdown and the longer-term impact of covid on real estate was beginning to be better understood. The results show some diversity in views, albeit with a preponderance for a worsening and more pessimistic outlook over a minority of slightly more optimistic ones.
The diversity of views – in part driven by the variety of respondents – is most evident in perceptions about market conditions in the UK and elsewhere in Europe. These are viewed as worse than in the previous three months by 52 percent for the UK and 43 percent for continental Europe; the figures for those who perceive conditions to be better are 36 percent for the UK and 28 percent for the rest of Europe.
Respondents’ views are shaped by the weight they place on different drivers. On the one hand, the pessimistic views are influenced by concerns about the economic environment and real estate fundamentals in certain key sectors. Of respondents, 84 percent think the economic backdrop is worse than last quarter, while 66 percent believe real estate fundamentals are worse in Q3. Substantial pessimism is expressed for hospitality (81 percent), retail (80 percent), offices (63 percent) and student accommodation (49 percent).
On the other hand, those who are more positive are likely to have been encouraged by the emergence of a more disciplined lending market, which could see tighter underwriting standards: 52 percent expect less debt availability in the next 12 months in the UK, while the comparable figure for continental Europe is 40 percent. Respondents also indicated a more measured risk appetite in terms of asset type selection, location and lending strategy. And, 70 percent believe covenants are tighter this quarter.
Overall, the results and comments underline a sense of fragility. The road to recovery will be long and with myriad challenges, such as a potential second wave, crisis management and the shape of fiscal policy to address a debt crisis. Even those that point to opportunity do so with cautious optimism.