Sentiment survey: More positivity, but office sentiment lags behind

The mood among Europe’s real estate finance professionals has improved since the end of last year, according to the results of CREFC Europe’s Q1 sentiment survey, which was conducted between 9 January and 25 January.

The industry body’s Q4 survey revealed an overwhelmingly negative outlook from debt market participants, likely driven by economic uncertainty including the impact of the UK’s ‘mini’ budget, which prompted a slump in sterling.

“Sentiment last quarter was catastrophic,” says David Dahan, CREFC Europe’s industry initiatives director. “It was significantly negative across most of the measures, including overall financing conditions, the political outlook, and real estate fundamentals.

“This quarter, I was surprised by the turnaround in sentiment. Conversations I have had with individuals in the market resonate with what the data is showing: people are more upbeat and believe the market is picking up.”

According to the latest survey, sentiment towards overall market conditions, although still negative, was better than in Q4. Questioned about overall conditions in the UK, 18 percent said they were the same as last quarter. However, 27 percent said they were better, with 4 percent saying they were significantly better.

While 86 percent of respondents to the Q4 survey said overall UK market conditions were worse than in the previous quarter, only 48 percent said the same in the Q1 survey.

“There was definitely a bounce-back in sentiment in the UK,” Dahan says. “The picture was similar in continental Europe, with 33 percent giving a negative response this time, compared to 68 percent in Q4.”

Dahan believes the comparative sense of optimism could be due in part to a more positive economic outlook. “Sentiment towards the economic environment in the survey is the best we have seen for a year. It is likely to do with projections of fewer interest rate increases and a sense that inflation is coming under control.”

Office concerns

While views of macroeconomic factors improved, Dahan notes respondents were more circumspect about real estate fundamentals. “There was a moderate shift in sentiment. While 17 percent of respondents in Q4 said fundamentals were significantly worse, only 10 percent said so this time.”

However, Dahan says sentiment indicators for individual property sectors were generally more positive in Q1 than in Q4. But offices – a sector which has been subject to substantial debate since the onset of the covid-19 pandemic – clearly remains a concern for industry participants.

In the Q4 survey, 71 percent of respondents said office market conditions were worse than in the previous quarter. In the Q1 survey, 66 percent answered the same – indicating a majority believe conditions have deteriorated further in the past three months. “Offices is starting to become a difficult call,” says Dahan. “We are seeing improvements in sentiment across retail, logistics, but offices remain in the doldrums.”

Describe in a few words how you feel about the market

Better than three months ago but still very fragile

For our type of nimble capital, the opportunities are compelling

Waiting for asset sales and loan defaults

Very challenging

Hoping inflation and interest rates have now peaked

People are now getting on with things while in Q4 they were stalling

Once-in-a-lifetime opportunity

On pause but not as bad as we feared

Generally illiquid and risk-averse

There is demand for debt but most lenders are playing it safe