According to David Dahan, industry initiatives director at the Commercial Real Estate Finance Council Europe, the organisation’s Q3 survey of members’ sentiment revealed a less dramatic change in mood than the previous survey in Q2. However, he argues that it nevertheless showed a continued improvement in how property debt professionals view conditions.
“The changes were more subtle than in Q2,” says Dahan. “But although there was no significant shift in sentiment since the last survey, we saw a stabilisation in how people feel following several quarters of fluctuation.”
The survey was conducted – between 25 June and 20 July – at a time when optimism about the rollout of covid-19 vaccines across Europe was being tempered by the spread of new strains of the illness. “When the survey was conducted, there were enough negative indicators around the Delta variant that some people might have been more reserved about the pace of recovery,” Dahan says. “There was a clear jump in optimism in Q2, but sentiment seems to have evened out a little in Q3.”
Positive momentum
However, Dahan argues that even relatively unchanged sentiment since Q2 should be read as broadly positive momentum. He points out that the survey asks respondents how conditions have changed over the previous three months, and that the proportion of positive responses indicates that enough of the people who were significantly more optimistic in Q2 are even more optimistic in Q3.
Respondents were generally more positive about the economic environment and real estate fundamentals, Dahan explains.
In the Q1 survey, 70 percent of people thought economic conditions were worse than three months earlier.
A shift was then seen in the Q2 survey, when 76 percent said economic conditions were better. “In Q3, 78 percent think economic conditions are better, so there is real momentum,” Dahan says.
He also highlights a correlation between respondents’ views on overall conditions, the volume of new business and debt availability. “Clearly, when people think about market conditions, they have a bias towards the ability to originate transactions.”
In terms of sectors, Dahan notes more positivity towards the under-fire retail market.
“While sentiment towards retail used to be highly negative, we now have 28 percent pessimistic and 21 percent optimistic,” he says. “So, there is almost equilibrium in strong feelings about the sector, albeit with the ‘no change’ response as the majority.
“We even had our first response since the survey began of someone saying they are significantly optimistic about retail.”
Better conditions
Sentiment towards offices did not change significantly, with Dahan noting that many finance professionals have a “watching brief” on the sector as people return to their desks after 18 months of home working. However, respondents felt better about hospitality, with 62 percent optimistic about the sector’s prospects.
CREFC Europe also polls sentiment about how far up the risk curve respondents see the most attractive risk-adjusted returns. In terms of asset type, there was a notable shift towards less core property types being viewed as offering the most interesting returns, commensurate with risk. The same was true in terms of location, with more respondents viewing less core locations as attractive drivers of risk-adjusted returns.
“On a relative basis they think the returns will be more compelling in the slightly riskier assets and locations,” Dahan says.
