Written by Sinead Crews and Carolyn Cohn
LONDON, Nov 28 (Reuters) – M&G Real Estate expects the global property market to face further mass forced sales as banks become reluctant to refinance distressed and low-quality assets at current interest rates. predicts that it’s only a matter of time.
Property developers in China, Germany and Sweden have been particularly hard-pressed by sharp increases in borrowing costs in recent years, with some projects being financed at rock-bottom interest rates and close to or close to prime financing terms. Or it is in violation.
Jose Pellicer, head of investment strategy at M&G Real Estate, said: “The past 25 years have been very strong, but now with rising funding costs, returns are either driven by rental increases or property value added. You have to be able to get it either way.”
“We are entering a new era in real estate investing and new thinking will be required,” he told Reuters ahead of the release of his company’s global real estate outlook on Tuesday.
Pellicer said the Chinese market’s problems are cyclical rather than structural, and while key growth drivers such as urbanization remain intact, the Chinese market will take time to recover. .
Pellicer predicted that Germany would likely see the highest number of forced sales in Europe, and that the market would be more likely than other countries to be shaken by the high cost of real estate debt and soaring asset prices.
The report, citing data from Bayes Business School, says nearly 40% of UK commercial property loan balances are due to mature in 2024 and 2025, with average property values increasing by more than 20% since mid-2022. He said it was declining.
Some borrowers may not be able to “meet interest coverage ratio terms at loan renewal” and may have difficulty finding available refinance options.
M&G, which manages 31 billion pounds ($39 billion) of real estate assets, said this could be an opportunity for alternative financial institutions to intervene.
“Real estate debt is becoming an increasingly attractive investment proposition,” Pellicer said.
Office troubles
The global office market has been disrupted by WeWork’s bankruptcy, dimming the outlook for the biggest business hub, and rising vacancies are already hurting investors.
But not all positions are equal, Pellicer said.
Poor-quality offices remain a global problem as employees are slow to abandon working from home even after the COVID-19 pandemic and buildings are expensive to renovate to meet sustainability goals. The report showed that this is a high-risk investment.
The U.S. is in a much worse position than Asia or Europe, with vacancy rates typically in the 25% to 30% range in downtowns in major cities, compared to single digits in Europe’s major business hubs, Pellicer said.
Real estate services firm JLL estimates that office-based work in the United States remains at just 50% of pre-pandemic levels, while in Europe that number has rebounded to 75%.
M&G says that a focus on environmental, social and governance qualifications and central location has created a market for prime, ultra-prime and secondary space, with non-prime properties facing “significant rental risks and weak rental prospects”. ” he said. ($1 = 0.8025 pounds) (Reporting by Carolyn Cohn and Sinead Crews; Editing by Alexander Smith)