Savills: Lenders and investors prefer the residential and logistics sectors

According to the Savills survey, respondents particularly preferred the residential sector, residential construction and first-class logistics.

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

Craig Timney, Savills UK director of valuations and director of the Edinburgh office, said: “Positive sentiment is returning, with the lending and investor communities’ greatest preference for the housing, housebuilding and prime logistics sectors.

“It is worth noting that 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 originated was the lowest since 2012, and the latest Bayes CRE Lending Report shows that only around £32.6 billion was granted, a decline of one third in compared to 2022. Much of the activity has been focused on refinancing, with many lenders increasingly working with their borrowers to restructure loans.

Timney 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 declining values ​​in many sub-sectors, when investors come forward to refinance or restructure loans, there is a risk that a discrepancy will emerge between the level of debt required and the amount of lenders. are willing to offer, which raises the question of how the funding gap will close over the next few years.”

Referring to the commercial property market, Mat Oakley, director of commercial research at Savills, emphasized 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 in continue to hamper the expectations of both sectors: 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 faster from a fall in interest rates, especially in sectors where there is confidence or mispricing, and we are already starting to see increasing gains in retail warehouses, industrial facilities and hotels.

“When it comes to offices, there are certainly demand challenges, but these have been largely overstated, particularly given job growth and density reductions.

“Prime office rents in Scotland are expected to rise steadily over the next few years, outpacing some regional rivals. Some investors are being smart about this and are already choosing offices in Scotland due to their high yields and prospects for solid rent growth.”

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.

Looking at the housing sector, Faisal Choudhry, head of Savills’ Scottish housing research team, said: “The UK housing sector is doing better this year than many expected, with Scotland doing better than the market. Market strength is supported by improving mortgage rates and buyer confidence.

“The number of agreed net sales of used goods in Scotland in the first five months of 2024 was 9% higher compared to the same period in 2023, according to data provider TwentyCi.

“There has been a reversal in pandemic trends, with commuter locations performing better than rural and lifestyle locations.”

Meanwhile, house prices in Scotland increased by 3.7% year-on-year in the first quarter of 2024, compared with 1.0% in the UK. As buyers took out longer mortgage terms, prices were supported by more cash buyers and strong wage growth. However, an increase in unsold homes has limited price increases as properties are taking longer to sell compared to pandemic years.

Looking ahead, the improving economic outlook and further anticipated reductions in interest rates are likely to create greater opportunity for house price growth.

Rental prices in Scotland’s main cities continue to rise, but the rate of increase has slowed due to pressure on tenant affordability. Across the UK, £4.5 billion was invested in the Build to Rent sector in 2023, the second highest figure on record.

However, investment in Scotland’s nascent Build to Let sector has stalled, largely due to a lack of clarity around the Scottish Government’s proposed rent controls.