Global economic uncertainty has caused banks to be more restrictive and cautious when granting credit. But not only in the case of individuals, but also of entities and specific industries such as real estate. For this same reason, many ecosystem agents and operators have been affected by the ‘brick’ restrictions. Even so, the living room sector has managed to gain ground and the confidence of the banks and manages to surf these credit limitationsbecoming a growing sector worldwide and especially in Spain.
It is a real estate submarket that is arousing the interest of investors in the sector, and that in short, are all those housing trends that are part of the different stages of people’s lives; that is, colivings, student residences, senior living, short-term rental housing, among others. Now with global uncertainty, a report by the global real estate investment manager M&G Real Estateassures that the living room sectors will be the most resistant to changes and bank ceilings “with solid fundamentals in terms of demand”.
“High-quality assets with solid cash flows are expected to perform better than average,” they say, referring to living. But the quality of this submarket has allowed them not to be affected as much as others. “Higher interest rates are likely to hurt corporate profits and reduce investment spending, weakening prospects for economic growth,” ensures the M&G Real Estate report. In addition, it ensures that the amount of commercial real estate loans such as percentage of total bank loans in Spain represents a little less than 5%. The country is at the same level as Denmark and below France, Finland, among others. Other members of the EU such as Italy are higher and the one that reaches the highest percentage is Swedenwhich almost reaches 15%.
The increase in investor appetite for living is also due to the fact that it is one of the methods more profitable for them and also for the users. For this reason, experts explain that it is one of the safest to carry out movements, and that it is one of the sectors that has been most consolidated in recent years. “Both in rental homes for coliving, as well as for student or senior residences. We live in a world where people move around a lot and this method allows flexibility”, says the Real Estate Personal Shopper, Inaki Unsain. The expert adds thathe difficulty in buying a home has allowed these coliving homes to grow more and more: “It is a sector on the rise.”
The report confirms that The United States continues to exist “the persistent and disproportionate” granting of loans by medium-sized banks to property owners and developers. In particular, almost 30% of all loans go to the US commercial real estate sector, compared to more than 5% going to the United Kingdom and the European Union. “Risk factors continue to vary greatly from market to market. In the eurozone, stricter and more generalized regulatory thresholds are helping to contain the risk of bank failure and guarantee that credit opportunities are not reduced”, they settle.
The head of investment and asset management at M&G Real Estate for Iberia, Federico Brossays that both inflation and interest rates are factors that must be considered when tackling the local real estate market in the coming months: “Selecting quality assets that enjoy a strategic location and that present good ESG credentials are some of the key elements. The economic fundamentals mean that Spain continues to be an attractive market for institutional investors in the real estate sector”. It also highlights the performance of the logistics and living sectors in the country, since both have historically demonstrated “their strength and resilience regardless of the different economic environments we have faced,” he concludes.
The difficulty in acquiring a home has encouraged the living room to increasingly become a growing sector
A report by the real estate consultancy JLL ensures that the living room sector will be in high demand in the coming years. In this environment of uncertainty, the Living sector continues to demonstrate its strength with an investor appetite that continues to grow each year”, they indicate. The same document indicates that during the first quarter of this year, the sector had an investment volume that accumulates 37% of total real estate investment in Spain. In the last four years, the weight of this area has tripled (from 8% in 2018 to 25% in 2022), reaching investment levels of 4,000 million euros. Still, just like in M&G, they also indicate that EThe United States climbs to the first place on the podium, because the living room exceeds 40% of all the investment in brick.
Despite this, economic uncertainty has caused turbulence in the banking sector and both lenders and investors they must face a higher degree of risk aversion. Experts call for caution to achieve better returns and recommend investments in prime sectors. “There is likely to be a ‘flight to quality.’ While lower quality assets, on the other hand, are more vulnerable to occupational market risks such as vacancy, particularly in the midst of a relatively fragile economic environment. “Over the years we have observed a recent trend in product segmentation within the Living world, with the aim of facing sociodemographic challenges through real estate”They comment on JLL, clarifying that it will continue to be one of the strongest areas of brick for the coming years.