Real estate will have much to gain from the recent fall in long-term UK interest rates if it is sustained, according to the latest findings from Moody’s.
The rating agency said it will take around six months for the sector to see the full effect of the benefits, which are predicted to include stronger asset values, lower cost of funding and improved sentiment.
Analysts at Moody’s said while the global outlook for real estate remains negative, the UK real estate sector is “likely to have troughed”.
Researchers added that the UK is further ahead in the property cycle than most other countries, having entered a downturn earlier and with asset values that have had a “larger and quicker” downward adjustment than other markets.
Additionally, the UK investment market is expected to improve in the second half of 2024. This will lessen the pressure on owners to raise equity and allow them to offload properties more easily, leading to improved leverage across the sector.
Although long-term interest rates have been falling, Moody’s pointed to the ongoing risk of a funding gap.
Older offices with weak environmental credentials are set to bear the brunt of the impact, having seen the biggest valuation drops and poor income prospects as they struggle to attract occupiers.
Stricter lending criteria and higher costs of servicing debt means some companies will struggle to refinance many of the typically five-year loans taken out in 2018-2021.
Polarisation between and within subsectors was highlighted as another trend that is set to continue. Analysts said each sector’s prospects for rental growth and investor appetite will be the main determining factors separating the winners from losers.
The living sectors, including residential and student accommodation, and the industrial and logistics sector are expected to outperform.
Send feedback to Pui-Guan Man
Follow Estates Gazette
