A Unique Window for Real Estate Debt Investors
In this Q&A with Private Debt Investor, Rupert Gill discusses why European real estate debt presents a potentially compelling opportunity today.
How would you describe the current state of the European real estate cycle?
The market is in a much better state today than it was 12 months ago. Valuations have significantly repriced downwards, and this is now being reflected in both new acquisitions and refinancings. Real estate investment volumes picked up across the market in the fourth quarter of last year and, from a lending perspective, our volumes were up dramatically in the second half and continue to gather pace.
Real estate does get impacted by interest rate rises and the market took a little time to accept those. The office sector was also impacted by a structural shift that has led to a large correction in values. But a lot of property types continue to see strong occupier demand and despite yield shifts, the lack of supply in Europe is driving increased rents and cashflows. That is true in logistics and in residential, where a shortage of housing is an issue in many European markets. Even in office, we see a shortage of good-quality stock in good locations which means that, despite remote working trends, there is huge demand for not just new developments, but also renovated properties that off er very good amenities and have good ESG credentials.
On the credit side, there is more liquidity than prior periods coming from real estate private credit funds and insurance companies. Banks are also lending again, albeit with more constraints and more focus on their core borrowers and core assets in the best locations.
