Since CREFC Europe conducted its Q2 sentiment survey in the weeks leading to 2 May, the European Central Bank and the Bank of England have cut interest rates on the back of easing inflationary pressures, and the UK has had a change of government. While real estate debt professionals largely accept such events will not trigger an immediate change in their sector’s conditions, the results of the industry body’s Q3 survey do suggest macro-factors are behind a more upbeat market mood.
The latest survey was conducted between 15 July and 9 August. Overall, the sentiment index scores calculated across the survey results show an improvement in respondents’ outlook. “In the previous survey, the index scores were ticking upwards. In Q3, we’re seeing further upward movement in those trend lines,” says David Dahan, CREFC Europe’s industry initiatives director.
The index score for overall market conditions reached its highest level since Q4 2021, the survey that preceded Russia’s invasion of Ukraine, which sent inflation higher and prompted a round of monetary tightening by central banks. Dahan notes that this quarter’s improvement in sentiment was most notable for responses pertaining to the UK market, compared with those relating to the other two regions covered – Ireland and continental Europe.
“The momentum is strong in the UK, and much more subdued in Ireland and the continent,” says Dahan. “We’ve seen a seismic change in terms of the government in the UK, so the fact there is a clear political mandate means there is more certainty. Contrast that with the negative impact of the European Union elections in June and the French election, which has led to a hung parliament. There is a difference in regional responses to the sentiment score that measures the political environment.”
Overall, Dahan notes improved sentiment towards the political and economic environment across the survey, the latter likely boosted by rate cuts and the expectation of further cuts to come. Meanwhile, respondents’ views towards real estate market fundamentals have improved slightly, albeit to a lesser extent than macroeconomic and political factors.
“Two indicators that I found particularly interesting were the one for volume of new business, which, especially for continental European markets, is improving, and so is sentiment around the resilience of existing loans,” says Dahan. “Until this quarter, they were in negative territory, and now they’ve turned positive.”
Offices lag
Views about individual sectors show debt professionals remain circumspect about offices. “Offices have definitely not turned a corner,” says Dahan. “They still show as a negative, and aside from retail, which is only just in negative territory, offices are the only negative sector for respondents.”
Continued poor sentiment towards offices is driven mostly by responses for Ireland and continental Europe, with UK responses almost neutral in their views towards the sector.
Dahan says the outlook for the other segments is improved, according to the survey. “Logistics, accommodation-based real estate, it’s all moving upwards. For UK responses, logistics and hospitality saw the most significant uplift, while for Ireland and Europe, student accommodation and alternatives got the positive sentiment.”
Describe in a few words how you feel about the market
“Optimistic”
“Slowly improving, but with a backdrop of distress being realised”
“Anticipating improvement”
“Lack of opportunities have seen competitive pricing by lenders. However, this is very asset specific”
“Opportunistic buyers’ market”
“Sentiment generally feels more positive on the back of economic improvement and the start of rate cutting”
“Geopolitical risks and market volatility will prevent the rebound we were expecting in H2, although underlying fundamentals start to look attractive”
“UK looking like a better investment proposition due to more stable political environment following the election”
“Starting to buzz again”
“European market is dispersed. Germany is under pressure, the Netherlands is very benign, and Spain is stable”
