Sentiment survey highlights renewed optimism across industry

Europe’s commercial real estate finance professionals felt much better about conditions in their markets during Q1 2020 than they did in the previous quarter, according to responses to the Commercial Real Estate Finance Council Europe’s latest sentiment survey.

The survey was conducted between 2 January and 27 January, during the countdown to the UK’s official departure from the EU, and in the aftermath of the country’s general election.

With 65 percent of respondents working within UK-headquartered organisations, it seems that the perception of greater political stability for such a key market would lead to a sunnier outlook.

Throughout 2019, the survey consistently showed negative sentiment surrounding political conditions.

The survey, conducted anonymously, is sent to up to three key contacts at each firm in CREFC Europe’s membership. A wide range of lender types and lending strategies, as well as advisory roles, are represented. CREFC estimates that its respondents account for an aggregated commercial real estate loan book of more than £142 billion (€169 billion).

Perceived political stability has improved the market mood

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

Our Q1 2020 sentiment survey was conducted against a backdrop of renewed optimism in the UK business community following the country’s general election. Despite ongoing concerns about geopolitical tensions, a more positive outlook is evident throughout the survey.

Most striking is the shift in perception towards UK market conditions, which only 3 percent of respondents assess as being worse than during the previous quarter. In each of our 2019 surveys, at least half saw conditions as being worse than during the previous quarter. This time, 55 percent think conditions are better.

Undoubtedly, the political environment is the most significant factor. Throughout 2019, when Brexit was the dominant theme, at least 70 percent of respondents in each survey thought the political environment was worse than in the previous quarter. In this survey, 78 percent think it is better. In comments provided by participants, a recurring theme is political stability. Some of the comments provided point to expectations of an improvement in the economic environment, the real estate market and overall liquidity as direct consequences of political stability and the removal of Brexit uncertainty. These comments are echoed in the survey results. More than 45 percent think the economic environment is better than in the previous month – compared with no respondents in Q4 2019.

For the first time since the survey was launched, there is consistency in positive views on the growth prospects for all types of lenders. There also appears to be a subtle shift in risk appetite, with a greater proportion of respondents identifying better risk-adjusted returns in higher risk assets and lending strategies. However, there is still consensus on being conservative with the selection of locations.

The buzzword of the inaugural Q1 2019 survey was “uncertainty”. A year on, many participants now refer to “stability”. There are still risks that could derail 2020, such as global politics and economics, and the coronavirus. But for now, as one participant said, the “post-UK election honeymoon effect will be positive”.