I recently had the pleasure of hosting our fourth ‘RealTalks in Real Estate’ event. As always, it was an incredible deep dive into some of the most prevalent topics in the UK commercial real estate market, with some of the brightest minds in the industry.
For this blog, I want to focus on a few of the market’s complex dynamics and current challenges, with key takeaways and insights from our discussions.
Navigating market anticipation and investor shifts
The general feeling in the market at the moment is one of anticipation. Everyone is waiting for interest rates to go down—something some of the guests described as rather dull. That said, the market is filled with eager investors who now need and want to place their money to achieve returns.
There has been a major shift in the investor landscape. Rising gilt rates have pushed many defined benefit (DB) schemes to withdraw their capital, leading to a suspension of redemptions that can only be postponed for up to two years. This scenario has created a sense of urgency among DB funds to release stock by the end of the year to meet their obligations and, most importantly, maintain investor trust.
Meanwhile, there’s an increased awareness of value-add and international players ready to seize distressed opportunities, creating a fascinating market dynamic.
Market adjustments and the role of banks
There’s no questioning it—the market is experiencing a slower price adjustment than many had anticipated. Many acknowledged the frustration felt at the goal post being moved with each macroeconomic factor that has come into play, and it was agreed that we’ll need to manage expectations for a while longer.
Still, unlike previous cycles, the banks are in a much stronger position than during the 2008-09 financial crisis, and they’re better equipped to handle stress because they hold a smaller percentage of the financing market.
While some distressed assets are out there, banks generally avoid taking them on as they can’t hold the properties. Instead, they’re opting to work collaboratively with borrowers to protect their investments, preventing the market from hitting rock bottom. This cooperative approach has been a key factor in stabilising the market and managing price adjustments more effectively.
The impact of private debt and future outlook
Private credit is playing an increasingly vital role in filling the gaps left by traditional banks. Private debt funds are inherently more flexible and can manage distressed markets, offering borrowers a lifeline by holding real estate and deploying significant capital. This has resulted in highly competitive lending conditions—particularly for prime and sustainable assets—where borrowers have been able to drive down margins due to a high level of interest from lenders.
Looking to the future, it’s clear the market will remain challenging for a while longer. While there are still high hopes for 2024, with many assets expected to hit the market, investors need to take a longer-term view. A large proportion of traditional domestic investors in the UK have stepped back, so there’s a greater need to raise capital from overseas – managing these investor expectations will be vital, as the journey to a normalised market is expected to be complex.
Final thoughts
The event really highlighted the complexities and opportunities within the UK commercial real estate market. From the cautious optimism around interest rates to the shifting dynamics of investor behaviour and the strategic roles of banks and private debt funds, there’s much to consider.
Thank you to all our attendees for providing these insights. It’s a pleasure to join the table and hear from so many inspiring women in the UK real estate industry.
As we grow our RealTalks network, we’d love to continue these important conversations and explore new strategies together. Get in touch at natalie@coyote.co.uk if you would like to attend our next event or catch up over a coffee.
