Sentiment survey: Debt market in a holding pattern

In the section of CREFC Europe’s Q2 sentiment survey in which respondents were invited to describe their feelings about the market, one drew on Irish writer Samuel Beckett: “Waiting for Godot (or at least for interest rates to show their true colours),” they wrote.

The feedback neatly captured the tone of the industry body’s latest poll, which was conducted between 5 April and 28 April. With all eyes on the future course of rates, and how they will impact real estate values and transaction flow, the results suggested debt professionals are neither much more positive nor much more negative in their outlook than during Q1.

In the previous survey, conducted in January, respondents’ outlook was better than in Q4 2022, when macroeconomic volatility created a negative mood. In Q2, CREFC Europe’s sentiment index scores, which factor in positive and negative responses, did not change significantly, says David Dahan, industry initiatives director at CREFC Europe.

“For example, for sentiment towards overall market conditions for the UK market, the index score went from -1.28 in Q4, to -0.25 in Q1, and to -0.29 in Q2. It is a similar picture for responses pertaining to continental Europe. Sentiment there was more positive, relative to last quarter, but remains negative overall.”

“The overall message is we are in a holding pattern versus last quarter, as people wait to see what happens”

David Dahan, CREFC Europe

Dahan points out the index scores measure how people feel relative to three months previously. “Sentiment was improved in Q1, but was still negative. So, the fact it was largely unchanged in Q2 suggests people still feel negative about certain factors, if not considerably more so.”

Index scores around factors including availability of debt capital and the volume of new business remained largely unchanged. However, index scores around lending terms remained in positive territory, Dahan notes. “People feel underwriting standards can become stricter as market conditions are tighter, and that there is better pricing of risk.”

Sentiment towards ‘macro-factors’, such as the economy and the political backdrop, was largely unchanged, adds Dahan. “The overall message is we are in a holding pattern versus last quarter, as people wait to see what happens.”

Sector picks

Respondents’ confidence about the prospects for real estate sectors was mixed. Although it was marginal, there was a downgrade in sentiment towards offices.

“The sentiment index score for offices had been around the same level for three quarters, and it fell, albeit by very little. Sentiment towards retail improved marginally, meaning offices are officially the worst sector in terms of sentiment,” says Dahan.

The index scores for industrial and logistics returned to positive territory in Q2 following three quarters of concerns among respondents. Meanwhile, residential sectors, including hospitality, were viewed relatively positively by respondents.

Overall, Dahan believes the industry is in “wait-and-see” mode. “There is perhaps an expectation of a bifurcation in the industry in H2 and a flight to quality. Certainly, sentiment around risk-return expectations suggests people see more attractive opportunities at the lower-risk end of the spectrum.”