Real estate stakeholders have expressed relief following the Bank of England’s decision to cut interest rates, which offers some respite from the pressures of a higher interest rate environment.
With inflation at the Bank of England’s 2% target for the past two months, the Monetary Policy Committee (MPC) has cut interest rates by a quarter of a per cent to 5% – the first reduction in over four years.
Dominique Moerenhout, CEO of the European listed real estate association EPRA, said the cut was a welcome respite for real estate and underscored optimism in the UK’s economic recovery.
Moerenhout added: “For listed real estate, the move will catalyse a new cycle of growth, with lower costs of borrowing bolstering confidence and commitment in capital investments in both new and existing assets. The listed real estate (LRE) sector’s favourable debt profile means it is well poised to benefit from the positive impact of lowered rates.
“Indeed, there is already a real opportunity for the sector across Europe to turbocharge growth and unlock value for LRE – and this decision from Threadneedle Street could be seen as the cherry on top.
“Whilst these cuts will lead to lower debt and refinancing costs in the medium to long term – and encourage other central banks to follow suit – just as significantly, the reduction signals immediate reassurance from monetary policymakers, with many hoping for further cuts this year.”
Gordon Milnes, a syndicator at Investec Real Estate, said: “Whilst one swallow doesn’t make a summer, the property market will be breathing easier today. The slump in investment volumes and refinancing challenges seen in the commercial real estate sector over the past two years, and depressed property company share prices, can all be traced back to the rising-rate backdrop.
“Whilst valuations look to be stabilising, further cuts will be required if we are to see a narrowing of the buyer/seller pricing disconnect that has paralysed the market, domestic and international capital being deployed into the sector at scale, and leveraged strategies becoming viable.”
Jim Gott, the head of asset surveillance at Mount Street, said: “It will be interesting to see if the Federal Reserve follows suit, though financial conditions in the US are vastly different to the UK and Europe, where the ECB cut rates in June and the Riksbank in Sweden, often a good lead indicator for global markets, cut rates in May. We welcome the cut that has been the source of speculation for a year.
“Looking at the Commercial Real Estate lending market, we have seen a marked increase in deal flow during 2024, especially in the alternative lender universe, where volumes have been at similar, or possibly even above, pre-Covid levels.
“This suggests that lenders and borrowers were relatively relaxed about rate cuts, it was just a case of when, not if. It feels very much like a Goldilocks moment for alternative lenders, with asset valuations likely excessively depressed, interest rate expectations elevated and LTV expectations low.”
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