M&G: UK property dip presents opportunity for alternative lenders
Alternative lenders could benefit from changes in the UK property market, as falling house prices lead to more refinancing activity, according to a new report from M&G.
M&G’s latest Global Real Estate Outlook found that while real estate debt costs have ballooned, distress has been limited to date.
However, the company noted that 30 to 40 per cent of all commercial real estate loans across the UK and Europe are due to be renegotiated by the end of 2025 at “significantly higher rates” which may force many borrowers into distressed sales. This is likely to lead to a rise in refinancing activity, which could benefit alternative lenders.
Jose Pellicer, head of investment strategy at M&G Real Estate, said that the real estate investment market is changing and investors are now prioritising income over capital appreciation.
“The days of ‘lower for longer’ interest rates are firmly behind us,” said Pellicer.
Read more: Cheyne Capital looks to raise £7.5bn for property lending
“Global property investors can no longer rely on yield compression and cheap debt to drive returns – there needs to be a fundamental shift in mindset.
“Investors may be naturally drawn to growth, but income is also of key importance given today’s higher rates. Investing in areas with strong demand drivers, such as the living and industrial sectors, could offer attractive returns through high income growth; as could sectors which allow inflation to be passed onto tenants, such as long lease supermarkets.
“Committing to asset improvements or investing in unloved properties with high income yields could also generate attractive income prospects.”
M&G found that retail returns are stabilising in the UK, with the best quality stock yielding above eight per cent, in the latest boon for landlords and buy-to-let investors.
Read more: easyMoney reveals where to find the best yields on BTL portfolios
The report concluded that global property investors will need to rely more heavily on generating high yields and growth to successfully compete in the current economic environment. Pellicer said that this will lead to shifting investor strategies in the year ahead.
“As global real estate markets adjust to a weakened Chinese economy, growing complexities around net zero carbon and changing patterns of demand and occupancy, we expect to see signs of greater confidence as investors recalibrate their approach to a drastically different economic landscape,” he added.
Read more: M&G launches £500m private credit fund
