The rise in inflation and interest rates has brought the market to a shuddering halt, experts agreed at Real Asset Media’s European Debt – Financing the transition briefing, which took place at the International Investors Lounge at EXPO Real recently.
“We’re seeing the market go through a period of introspection, trying to determine what real value is,” said Richard Craddock, managing director, debt investments, LaSalle Investment Management. “It’s a phase of transition towards a new normal.”
After over a decade of low or negative interest rates there’s been a 3% upwards shift, a sense of shock and a pause for reflection are to be expected.
“There’s a definite pause in the market at the moment,” said Carrie Hartle, head of real estate debt UK, Schroders Capital. “We’ve seen record levels of redemptions in the last few weeks and tremendous volatility. We need to have the market settle, but we expect interest in real estate debt to pick up again.”
Conditions are challenging for lenders as well as borrowers.
“The syndication market is on hold,” said Duco Mook, head of treasury debt financing EMEA, CBRE Investment Management. “The problem for borrowers is not just higher interest rates but also the volatility of the money, as constant upward revisions make it very difficult to manage.”
It is harder to do fund-raising now, but there is a strong conviction that the current situation is transient.
“Regardless of where we are in the cycle, the long-term sustainability of the market is not in question,” said Hartle. “The market is attractive because it’s relatively stable.”
Supply and demand fundamentals are still positive, so things will settle as inflation is brought under control, interest rates stabilise and optimism returns to the market.
“Macro-economic uncertainty makes fund-raising difficult, but we really believe in real estate debt as an asset class, as it allows you to capture the uptick in returns,” said Craddock.