A forecast prolonged period of tighter credit conditions will hamper capital value growth and recovery for global real estate, according to research from M&G.
According to the firm’s mid-year Global Real Estate update those with significant exposure to weaker or riskier assets and over-leveraged investors facing refinancing risks will be the worst affected.
“Global real estate markets are rebalancing, but we’re not out of the woods yet,” said M&G Real Estate head of investment strategy Jose Pellicer. “We shouldn’t forget that structural changes such as hybrid working and the rising importance of ESG means that some non-prime assets may not survive.”
The relative absence of risky lending in recent years, however, means that the banking sector is in better shape than it was during the Global Financial Crisis.
The report also states that almost 30% of all loans by US regional banks are to commercial real estate borrowers, compared to a little over 5% in the UK and across the EU.
In the Eurozone, tighter, more widespread regulatory thresholds are helping to contain the risk of bank failures and ensuring that lending opportunities are not undermined.
UK real estate has “won the global race to the bottom”, said M&G, with much starker repricing of assets than in other world markets. But although there is cautious optimism emerging, particularly for industrial, some retail property, and the residential sector non-core offices and assets which fall short of tightening environmental standards will remain under pressure.
M&G also states that repricing in the Eurozone is one or two quarters behind the UK and office vacancy rates are far lower than in the US, office vacancy rates are far lower, particularly in prime central business districts where new supply is more limited.