As I write this, the market is digesting the first signs that the stubborn inflation that has underpinned 13 consecutive interest rate rises may finally be being brought under control.  Of course, one swallow doesn’t make a summer, but while rates are forecast to rise another 25-50 basis points in the short term, the consensus seems to be that we may be nearing the peak.

Looking through the near-term uncertainty, we have been encouraged by a number of data points in recent months. UCAS has predicted one million higher education applicants in a single year in 2030, up from more than three quarters of a million in 2022. Office occupancy rates have reached their highest level since the end of the national lockdown in March 2021. And completed Build-to-Rent schemes are up 13% year on year.

Whilst deal activity remains somewhat muted, reflecting ongoing valuation uncertainty and general caution, we continue to see opportunities to support both new and existing clients across our core sectors of residential, PBSA, logistics and office.

In line with the wider sector, we are increasingly working with our clients, especially in the private client space, to ensure that their real estate portfolios are fit for purpose from a sustainability perspective. With a significant number of buildings that already, or will soon, fail the government’s minimum energy efficiency standards (MEES) that make it unlawful to let property without a high enough Energy Performance Certificate (EPC), we can offer support at both the education and implementation stages.

The evidence for ‘green premium’ continues to be most apparent in the office sector, with demand for true Grade A / A+ outstripping demand in prime locations. We have funded several schemes across London, in core London submarkets, including Farringdon and King’s Cross, which are letting up extremely well and it’s a sector we like, despite the well publicised challenges.

Whilst a higher rate environment has played to alternative lenders with IRR driven models and a greater risk appetite, this feels like a short-term phenomenon.

Relationship banking, which is in our DNA, will continue to be the most important factor driving outperformance over the longer term.

With the majority of loans that we have underwritten in the last 12 months done with repeat borrowers, we are well positioned for what we hope will be a speedy and substantial market bounce back.

 

Modern building with greenery growing over it

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