As the financial climate becomes increasingly challenging, major property investors are resorting to inventive strategies, such as debt repayment, to maximise their portfolios’ efficiency. This insight emerges from the latest independent study, commissioned by property industry specialist Handelsbanken.
The Handelsbanken Professional Landlords Survey, which delves into the insights of expansive UK investors, reveals a collective average of 29 properties valued at approximately £14 million each. The study exposes the acute awareness amongst professional landlords of the sector’s risks and hurdles.
An overwhelming 91% of participants intend to mitigate their portfolios’ debt in response to escalating interest rates. The emphasis lies in ensuring maximum yield optimisation alongside a balanced risk/return profile.
According to the findings, about two-thirds (66%) of professional landlords offloading assets display a bearish market attitude, while 24% confess that they lack the financial capacity to enhance their portfolios in line with new sustainability regulations. Such regulations include the Energy Performance Certificate rules applicable in England and Wales.
Amidst the market ambiguity, several investors are expected to bide their time, awaiting the opportunity to acquire assets at a reduced cost. The objective is to drive long-term value creation, adapt assets according to observed trends by Handelsbanken, and capitalise on the early shifts in work patterns towards increased office utilisation.
This hypothesis is supported by the fact that 58% of the participants aim to augment their commercial offices portfolio. Simultaneously, just over half surprisingly express an intent to expand their exposure to retail property. Despite the challenges, the research affirms robust faith in the UK property as a viable asset class.
Simon Bradley, Chief Credit Officer at Handelsbanken, comments, “Our Professional Landlords Survey delineates the proactive approach adopted by landlords to manage the ongoing sectoral difficulties, along with a pronounced vision for future investment. They are set to leverage predicted market trends and enhance value through active management.
“In light of the market conditions, landlords will need to make considerable investments to accommodate the increasing tenant demand for superior amenities and secure significant returns.”
The study is released at a time when the property sector is under scrutiny. The property sector, both residential and commercial, is experiencing price adjustments, compounded by the challenges of escalating interest rates and a limited housing supply.
James Sproule, UK Chief Economist at Handelsbanken, adds, “Professional landlords, unlike owner-occupiers, generally adopt a more dispassionate and pragmatic view of property values, acknowledging market realities more readily. Hence, we observe a sensible trend of landlords repaying debt while remaining receptive to opportunities, particularly in office sectors.
“Given the persistent rise in interest rates, it seems improbable that residential prices will stabilise shortly. Thankfully, with inflation surpassing its target level, nominal prices will not fully convey the actual impact of the price declines. Anticipating the peak of interest rates around August, we foresee a price recovery commencing in the autumn and extending into early 2024.”