Large portfolio professional landlords are looking to pay down debt as they focus on optimising their portfolios in the face of challenging economic conditions, new independent research* conducted on behalf of property business expert Handelsbanken shows.
This year’s Handelsbanken Professional Landlords Survey – based on nationwide research among large UK investors with an average of 29 properties worth c £14 million each – shows professional property investors are acutely aware of the risks and challenges facing the sector.
It found 91% are looking to pay down the debt on their portfolios in response to rising interest rates with a focus on ensuring they are truly optimised in terms of yields and risk/return profiles.
Around two-thirds (66%) of professional landlords disposing of assets say they are bearish about the market while 24% say they cannot afford to upgrade portfolios to comply with new sustainability regulations such as Energy Performance Certificate rules in England and Wales.
However, given market uncertainty, many investors will likely be waiting for opportunities to buy at reduced cost with a view to longer term value creation, re-purposing assets (as Handelsbanken is seeing) and / or capitalising early on shifts in working patterns back towards more office usage.
That belief is also reinforced by the fact that 58% of our sample said they are looking to increase their exposure to commercial offices, and just over half, perhaps surprisingly, are looking to increase their exposure to retail property. The research shows that there is still strong confidence in UK property as an asset class.
Simon Bradley, Chief Credit Officer, at Handelsbanken said: “While our Professional Landlords Survey shows how they are positively managing the current challenges within their sector, it also reveals a clear ambition for future investment, by taking advantage of forecast market movements and adding value through active management.
“In our experience of the market, investors will require significant investment to meet current tenant demands for greater amenities to achieve meaningful returns.”
The research comes amid heightened interest in the property sector with both residential and commercial areas undergoing price corrections. Higher interest rates and lack of housing supply are also presenting challenges.
James Sproule, UK Chief Economist at Handelsbanken said: “In contrast to owner-occupiers, professional landlords will often have a more detached and less emotional view of property values and are more likely to act in a way that recognises market realities. That’s why we are seeing landlords sensibly paying down debt, while others are increasingly alert to opportunities in sectors such as offices.
“More broadly, with interest rates still rising, it is difficult to see residential prices stabilising in the short term. At least with inflation remaining well above its target level nominal prices will not reflect the real full impact of price declines. Looking forward, the peak of interest rates, likely to be in August, will set the scene of a price recovery in the autumn and early 2024.”
[1] 62% of the sample classified their business as “real estate investment” while 22% classified their business as “landlords” (residential and commercial) and 16% classified it as “property management.
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