Debt market mood takes a sharp negative turn, finds CREFC survey

The latest sentiment survey by CREFC Europe indicates a significant negative shift in the outlook of respondents.

According to David Dahan, industry initiatives director for the industry body, the results of the Q3 2022 survey – conducted between 4 July and 27 July – reflect growing concerns about the impact of economic headwinds on the lending market.

The change in sentiment around lending terms was pronounced, he says. “We are seeing a correction starting to appear in terms of debt providers tightening their lending parameters. Pricing is increasing, probably because there is less liquidity in the market.”

While Dahan admits higher pricing might be viewed positively by lenders, he believes most see it in the context of a more volatile market backdrop. “From a cost-of-borrowing perspective, lenders appreciate it may get more difficult for equity owners to borrow because their revenues will shrink in the more difficult economy. That could mean more tension around financial covenants.”

Responses to questions about loan-to-values and interest coverage ratios show lenders are dictating loan terms to a greater degree, according to Dahan. (The UK market responses, which showed the most movement, are shown below.)


Throughout the life of the survey, which began in Q1 2019, sentiment towards the political and economic backdrop has been largely negative. But while Brexit, covid and now inflation and the Ukraine crisis have informed views on the political and economic environment, survey respondents had largely kept faith with the outlook for property markets, until now.

“What changed this quarter is sentiment towards real estate fundamentals,” says Dahan. “The sentiment index score has gone into significant negative territory for property fundamentals.”

CREFC Europe calculates a sentiment index score for the responses to survey questions
by subtracting negative responses from positive and stripping out neutral to provide a single data point that can be tracked quarter-by-quarter to indicate change in sentiment.

Dahan believes the sudden shift in sentiment towards real estate fundamentals is driven by a belief that high inflation and the cost-of-living crisis will impact consumer behaviour and business investment, directly affecting real estate performance. This is affecting sentiment towards individual sectors, he adds. “No matter what people say about offices, sentiment about the sector has been very volatile since the pandemic. Sentiment towards retail had improved but is back in negative territory as it will be front-and-centre of the cost-of-living crisis.”

Sentiment around logistics is most interesting, he adds. “It has been the darling among sectors for some time. This quarter, it seems people think it is overpriced and expect a negative turn. For the first time since we have run this survey, the responses are in negative territory. This is significant.”

Describe in a few words how you feel about the market

“Trying to be opportunistic in light of a debt and equity price adjustment, which has started to work its way through”

“Pause as people re-assess impact of inflation on consumers and the impact this will have on wider economy”

“Large market volatility but opportunities for those with swift execution”

“The market is broken – the people still doing deals mostly just haven’t realised what is going on in the greater world”

“The most challenging environment in a generation”

“Inflation an increasing concern”

“Greater caution as risks have increased in real estate fundamentals, economy and interest rates”

“Underlying property performance has been good, which is in contrast to the macro view that we are in a recession”

“Lot of market uncertainty, but strong demand for high-quality opportunities”