Future Living 3 - Living is as safe as houses
2023 Future Living report
10 min read
Despite the surprising inflation figures published earlier this month, we are optimistic for the coming year, with the number of transactions that the team has closed this month.
Our expectation is that we will see interest rate cuts of between 25 and 75 basis points in the US, Europe and UK, potentially in that order and commencing in Q2 or Q3. After a year that was characterised by liquidity challenges, this should lead to an improvement in property investor sentiment and a bounce-back in transaction volumes – possibly even as large as what we saw post Covid-19.
Investors hate sitting on their hands and all want to be first to call the bottom of the market, so they are looking for reasons to get comfortable. I do not believe in the ‘survive ‘til ‘25’ phrase I have heard some people using. The smarter money will be early movers in the middle of this year – there should be some great deals to be had and they will not want to miss out.
What else do we expect this year to bring and what opportunities might it throw up? We expect to see the bid ask spread narrow further, especially in those sectors that have been operationally robust – logistics and residential spring to mind.
There are also likely to be a larger number of refinancing deals in 2024 given that alternative lenders, who make up around 50 percent of the market, have different time horizons or access to liquidity, which reduces the flexibility they can offer. The result is that they are less likely to be willing to extend on favourable, client-led terms.
We also foresee opportunities in construction lending, following a lean 2023 which saw 20% less construction work start on site than in 2022. If interest rates start to come down as predicted and land costs remain subdued, the development finance market will continue to recover as appetite from both borrowers and lenders alike increases.
Anecdotally, we are hearing from our developer clients that they feel build cost inflation is past its peak. Both borrowers and lenders should also be attracted to the in-built protection provided in value creation asset projects.