The findings of the Q4 sentiment survey by the Commercial Real Estate Finance Council Europe suggest property finance professionals are largely optimistic about market conditions as the year nears its close.
According to David Dahan, industry initiatives director at the industry body, the mood among respondents is likely to reflect increased dealflow in the financing market.
Indicators which relate to origination activity, such as availability of debt and volume of new business, are highly correlated with the positive sentiment around overall market conditions,” he says.
“People are seeing a lot of transactions in the market, and more competition for them, because there is more capital available. Respondents are writing more business, and they feel good about that.”
Dahan believes the survey results suggest lenders are taking a little more risk, albeit within the sectors and locations they are most familiar with. “In the UK, 29 percent said they see loan-to-values starting to increase on the previous quarter, up from 20 percent in the Q3 survey. It hints at a little more competition,” he says.
Describe in a few words how you feel about the market
“Optimism is returning. But sector differences are still very large”
“Covid impact is decreasing”
“As government support is withdrawn, we will see increased stress and distress across many sectors”
“There is building inflationary pressure”
“Retail, offices and hotels are not out of the woods yet”
“However, the data also shows people are less comfortable taking higher risk in terms of the type of assets they will finance. So, the increased willingness to relax terms is limited to within the parts of the market they are most comfortable with.”
Although sentiment towards market conditions has improved overall, Dahan notes slightly more negativity around the political and economic environment.
“I suspect there is concern about inflation,” he says. “We are going through inflationary pressure in a lot of sectors, particularly in the construction space, which will be of concern for anyone financing developments.”
By sector, Dahan notes that the most significant change in sentiment related to retail, where positive responses have outweighed negative ones for the first time since the survey was launched in Q1 2019. “People are starting to see investor interest in retail and lenders taking a closer look, even though there are still few transactions,” he says. “Retail has reached the point at which opportunities are emerging at a reasonable price, so we may see more transactions.”
There is also more positivity around offices, which Dahan attributes to the gradual return of white-collar workers to their desks: “They are starting to see the value of the office again in their own circumstances and they are seeing people starting to go back. There is also a recognition that owners of office space are thinking about how they can service the needs of occupiers.”
Hospitality, which has been hit hard by the pandemic, is another sector attracting positive sentiment as investors and lenders see opportunities. In contrast, Dahan notes relatively flat sentiment towards logistics: “It seems people do not see much change, compared with the positive views over several consecutive quarters. Relatively speaking, other sectors that are emerging perhaps look more interesting to them.”