LMA: bearish sentiment recedes in 2018 as clear majority believe market downturn no longer imminent

By James Wallace - Wednesday, May 16, 2018 13:16

More than three-quarters (75.7%) of European real estate finance professionals believe that the next commercial real estate downturn will arrive in either 2018 or 2019, as the bearish sentiment recedes over the past year.

According to The Loan Market Association’s (LMA) sixth annual real estate finance survey, which surveyed 180 active real estate finance professionals, less than one in 10 survey respondents (7.9%) believe the next downturn will come in 2018. This compares to more than one-third (35.8%) believing the reversal had either already begun or would start this year (11.9% and 23.9%, respectively).

No one this year believed the downturn had already begun, illustrating an improvement in market sentiment over the period. However, less than half (42.4%) believe European real estate markets have peaked, while a surprising near one-quarter (22.6%) still believe the market remains in expansion mode.

The proportion of professionals that believe the greatest current market challenge is excessive competition chasing limited transactions has risen from 30.6% in 2017 to almost half of all respondents in 2018 (48%). Fears over political and macroeconomic uncertainty have receded over the year from almost 60% to 42.3% (2018: 23.7% and 18.6%, respectively, 2017: 41.8% and 17.9%). The proportion of professionals that believe the UK is still a safe haven for real estate finance investment has improved from 65.7% in 2017 to 71.3% in 2018. While the question does not segregate between senior and mezzanine financing, it is probable that the 28.7% in 2018 who believe the UK real estate market is no longer a safe haven will include mezzanine or high leverage and opportunistic asset lenders.

Frankfurt tops the leaderboard for which European city has the greatest potential for growth post-Brexit, although the winning margin has considerably receded on a year ago. Frankfurt received 37.5% (2017: 51.5%) of the vote, followed by Dublin at 20.5% (2017:24.2%), Berlin at 14.8%, Amsterdam at 11.8% (2017: 12.2%) and Paris at 7.4% (2017: 7.6%). This spread perhaps reflects the expectation that there will be no outright winner and that departing corporate tenants will not relocate in a uniform manner. That said, expectations are rising that the departure volume from the London and the rest of the UK will be less significant that first assumed.

In terms of new capital, China and the Far East (ex China) have edged up as expected sources of overseas capital into Europe from 62.1% in 2017 to 64.9% in 2018, continuing the trend of recent years.  

LMA’s objective is to improve liquidity, efficiency and transparency in the primary and secondary syndicated loan markets in Europe, the Middle East and Africa (EMEA).  Founded in 1996, LMA’s membership has grown steadily and now stands at over 670 organisations covering 61 countries, comprising commercial and investment banks, institutional investors, law firms, service providers and rating agencies.

James Wallace is a freelance consultant and can be reached via Linkedin or email: jawallace32@gmail.com

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