The timing of CREFC Europe’s Q4 sentiment survey was likely the determining factor in the tone of its responses.
The property finance industry body polled its members between 15 October and 6 November – a period in which a US presidential election and a UK budget took place. However, both happened towards the end of the polling period – right at the end, in the case of the US election – meaning the results will largely reflect the days and weeks running up to these events.
“The headline from the results is very much that it was stable compared to last quarter in terms of momentum,” says David Dahan, CREFC Europe’s industry initiatives director. “A lot of the responses are less polarised. They are very much around the centre option of ‘no change’ relative to last quarter. So, when there is no change, it indicates the same sentiment as the previous quarter.”
This means a continuation of the slightly more positive mood recorded in the Q3 survey. In that edition, the sentiment index scores calculated across the results showed an improvement in respondents’ outlook. This time, the charts show a general plateau in the sentiment index score across large sections of the results.
Leaks in the UK press during the survey period about the country’s looming budget, the new Labour government’s first, which promised a large increase in public spending, are likely to explain one change in sentiment, says Dahan. “The macro-picture was overall stable aside from the question about politics and economics and specifically from UK respondents, where there was a sharp fall, albeit still in positive territory.
“In the part of the survey about market conditions, which includes six factors, only one showed more than 10 basis points’ of movement – the question about margins and pricing, for which sentiment was slightly lower.”
In a more competitive market environment, downward pressure on debt pricing likely informed responses to this question.
Financial covenants are becoming slightly looser compared with Q3, says Dahan, as indicated by a decline in sentiment towards loan-to-values and interest coverage ratios, from a lender perspective. “LTVs are creeping slightly up maybe, and ICRs slightly down,” explains Dahan.
On sectors, Dahan notes a small uptick in sentiment around offices, although he adds it was minimal. Meanwhile, retail is “starting to recover nicely”, according to sentiment. “It has been continuous over the last few quarters. Certainly, again this quarter, there’s been an improvement.”
Consistent with this indication of improved sentiment towards retail, Dahan says were positive mentions of the sector among panellists at CREFC Europe’s Autumn Conference.
Describe in a few words how you feel about the market
“Optimistic(ish)”
“Values have hit bottom. The time is now for buyers and lenders”
“Returns normalised but transaction volumes still low”
“Selectively opportunistic”
“Need more repricing”
“Global geopolitical unrest, economic stagnation and consequent expanding nationalisms are stalling any progress”
“Cautiously optimistic but very vulnerable to exogenous shocks”
“A very varied market: Spain=great, UK=OK, Germany=problematic”
“Still disappointingly flat”
“Getting more competitive”
