Real estate lenders were most worried about Brexit trade negotiations at the end of January, before the Covid-19 pandemic hit the UK, Link Group’s market trends analysis has revealed.
More than three quarters (77 per cent) of property lenders cited trade talks between the UK and EU as the biggest risk to the commercial real estate market, just a month before the Covid-19 outbreak forced governments into nationwide lockdowns. A further six per cent cited general political risk.
And according to Link Group, Brexit will continue to affect the market during and after the pandemic, especially in the fourth quarter this year.
“This year’s market trends analysis shines a light on some key themes within the sector, but it also highlights the extent of uncertainty in real estate,” said James Wright, head of real estate finance at Link Group.
“This will now be exacerbated by uncertainty in the global macro-economy.
“Looking beyond the current more challenging circumstances, clear changes in lenders’ preferences are visible: for example, in contrast to recent years, mezzanine debt became cheaper, with margins on these loans falling nearly one per cent year-on-year.
“Market players have been seeking yield in real estate debt and have subsequently shifted up their risk appetite in an attempt to capture it.”
At the end of January, most lenders predicted a steady trajectory, or even small increase, to property prices this year, although Knight Frank has since forecasted house prices to fall by three per cent in 2020.
Appetite for commercial real estate loans surged across multiple investment sectors in 2019, indicating that lenders have broadened their capabilities.
The biggest rises were in residential and student housing.
Other core sectors such as office and industrial real estate also increased, and only retail declined, both in loans for investment and development.