What real estate sectors are investors and lenders most interested in right now?

Lender and investor sentiment has improved compared to 12 months ago, Savills revealed last week at its 36th Financing Property presentation in London.

According to Savills’ 2024 Guest Property Finance Survey, respondents were more likely to borrow and invest in the residential, property development and premium logistics sectors.

Price sentiment also improved across all property sectors compared to last year.

Nick Harris, head of UK valuations and cross-border transactions at Savills, said: “Positive sentiment is returning, with London’s lending and investor communities most favoring the housing, housebuilding and prime logistics sectors. Notably, the divergence of views on where markets are heading has decreased across most asset classes, suggesting that greater comfort with price discovery has been achieved.

Savills notes that 2023 ended with around £40 billion of assets traded, a significant decline from historical levels. And despite early optimism for the 2024 market, Q1 2024 transaction data represented the lowest Q1 levels in 12 years. However, some significant deals have been made and volumes are expected to improve as the year progresses and the economic recovery continues.

Unsurprisingly, given the low level of transactions, the number of new loans issued was the lowest since 2012, with the latest Bayes study showing that only around £32.6 billion had been issued, a decline of one third compared to 2022. Much of the activity has focused on refinancing, with many lenders increasingly working with their borrowers to restructure loans.

Harris continued: “We have seen some forbearance from lenders, but clearly these historic lending positions need to be addressed at some stage. Many lenders have told us they expect to see much more activity in this area over the next 12 months. Of course, with higher borrowing costs and falling values ​​in many subsectors, when investors decide to refinance or restructure a loan, there is a risk that there will be a mismatch between the level of debt required and the amount lenders are prepared to offer, which raises the question of how the financing gap will decrease over the next few years.”

Regarding the commercial property market, Mat Oakley, director of commercial research at Savills, noted that although investment volumes in the UK have increased from a low level in the third quarter of 2023 and capitalization rates for prime properties have started to increase, investment activity continues to progress is hampered by the expectations of both countries: and the hunt for misfortune.

He commented: “The period after the Great Financial Crisis suggests that distressed selling will peak in the next few years. Some sectors will recover more quickly as interest rates fall, particularly in sectors where there is belief or mispricing, and we are already starting to see increasing gains in retail warehouses, industrial facilities and hotels.

On pricing, Savills notes that the market remains cautious until trading volumes normalize, but believes prices are at or near the lowest levels for many of the UK’s best sectors. Overall, prices are currently approximately 25% lower compared to June 2022, although they vary significantly by sub-sector.

From a residential perspective, Savills highlights that there has been a reversal in pandemic trends, with commuter locations performing better than rural and lifestyle locations. In London, flats are outperforming houses, with UK house prices set to increase by 21.6% by 2028.

£4.5 billion was invested in the Build to Ren sector in 2023, the second highest figure on record.

Emily Williams, director of Savills’ housing research team, said: “The UK housing market has performed better this year than many expected, with the anticipated cut in interest rates and improved economic prospects creating greater scope for house price growth.”