A widening gap
A challenging global economy, rising interest rates and falling asset values are prompting greater caution from buyers and lenders alike. Altogether, this is creating a $5 billion real estate capital funding shortfall by diluting equity and reducing the availability of debt.
A transfer of leverage
As interest rates stay higher for longer, there are related shifts in investor focus, negotiating power and potential returns. Credit returns are lifting with higher rates and wider margins, alongside greater debt demand and weaker lender competition.
Abrupt sector rotation
Changing fortunes in real estate sectors are impacting finance availability. Banks are visibly shifting their loan allocations, reducing their relative exposure to retail initially and office more recently, amid a long running structural move from residential and land development, exacerbating the funding shortfall in these sectors.
Being selective on equity
Existing investors remain cautious overall, given the ongoing correction in asset prices. New buyers have a good bottom‑of‑the‑cycle entry window ahead, although it is important to be selective about sectors and the entry price points.
A focus on private credit
A focus on private credit. The shortage of credit puts lenders at a strong advantage, at a time of improving returns and relatively resilient incomes, especially compared to other asset classes. The credit squeeze is similarly more acute for specific sectors, even as equity investors start to return with more palatable pricing.
A time for non bank lenders
Deposit‑taking lenders are facing more constraints ahead, impacted by the fallout from the US regional banking crisis, tighter lending standards and more prudent regulators, offering considerable scope for non‑bank lending growth.
