UK mortgage lenders begin their post-Budget repricing
Making sense of the latest trends in property and economics from around the globe
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European investors plan to ramp up investment into the Living Sectors as debt costs fall, according to Knight Frank's new investor survey.
All of our 55 respondents, who have more than €98 billion in living assets under management, said they plan to increase their exposure to the sectors in the coming five years. Four in ten are planning to increase their exposure by between 20% and 40%, while a little more than a quarter plan to increase their exposure by between 40% and 80%. The remaining respondents are very bullish: 14% say they will increase their exposure by 80% to 100%, and 7% said they intend to double current allocations.
Should their ambitions be realised, our survey respondents alone have earmarked a further €64 billion to invest over the next five years.
London, Madrid and Berlin will be the top locations for investment. London was the most popular choice for PBSA and seniors housing, with Madrid pipping London to top spot for BTR.
Other locations of note in the top 10 include Dublin, Milan, Amsterdam and Barcelona. The responses suggest a focus on liquidity and safe havens with some opportunistic investment.
Debt costs
The results arrive as the market is stabilising following two years of declines. Provisional data for Q3 suggests €7.5 billion transacted during the quarter, up marginally year-on-year. Investors spent €36 billion in the past twelve months, up 3% on the previous year but still notably below the five-year average.
Debt costs have eased and 60% of respondents plan to increase their leverage in the coming twelve months. The 12-month Euribor swap rate dipped below 3.0% in early August for the first time since January and currently trades at around 2.5%, down from around 3.9% a year ago.
As the cost of debt comes down further, transactional activity levels will pick up in the first half of next year. Of those investors planning to increase their financial leverage, 37% are planning to use it for acquisitions, with 27% using it to enhance returns. A fifth (19%) plan to use it to fund development.
See the report for more.
Education deals
Education sector occupiers are helping drive a recovery in office leasing across UK cities.
During the first three quarters of 2024, the education sector accounted for 12% of office space leased across the UK's 10 largest cities, up from 7% at the equivalent point in 2023, according to Knight Frank's new UK Cities report. The education sector accounted for nearly a quarter of total take-up in Q3.
In Birmingham, Ashton University recently signed up for 189,053 sq ft at 10 Woodcock Street, and the Global Banking School has taken 68,192 sq ft at 1 Brindleyplace.
The deals are part of a broader recovery in leasing activity. Take-up reached 1.6m sq ft across our ten cities, which is 24% above the level recorded the previous year and is 11% above the 10-year quarterly average. The year-to-date measure of take-up shows that nearly 4m sq ft of space has been leased. This is 14% ahead of the equivalent point in 2023 and is 12% above the 5-year average. Notably, this is the highest total recorded at this stage since 2019.
Mortgage rates
Several of the UK's largest lenders have announced plans to raise mortgage rates in recent days, including Nationwide, HSBC, Santander, TSB and Virgin Money.
Most opted to make their move yesterday, triggering a broad repricing that will settle down once the market reflects the new outlook for interest rates, which has shifted since the Budget. Investors will need to see a positive shift in both the domestic and global inflation narrative if swap rates are to decline meaningfully and open up the possibility of cheaper mortgages. That looks unlikely for now: wage and unemployment data continues to move in the right direction, but at a slower rate than economists had been expecting.
US inflation figures arrive later today. Analysts expect a monthly rise of 0.3%, which add little clarity as to whether the Federal Reserve will opt for another rate cut in December.
In other news...
Builders face ban on gas boilers in most new homes in England (FT).