Macroeconomic concerns drives institutional investors to specialist property development finance firms

By Bridging Loan Directory 1st February 2024

Rising concerns about tough UK economic conditions are reshaping how institutional investors engage with property development finance firms, new research by responsible investment manager Downing shows.

Around half (45%) of institutional investors questioned by Downing said they are very concerned about the impact of macroeconomic factors, such as the cost-of-living crisis and rising interest rates, on the property development finance market. The other 55% said they are quite concerned.

Their worries are changing the way institutions invest in senior debt for property development finance as an asset class, the study with UK institutional investors responsible for around £405.6 billion assets under management found.

Around 88% of the private sector and public sector pension funds, family offices and insurance asset managers questioned say economic concerns are driving institutions to cut the number of property development finance firms they work with and concentrate on specialists with a strong track record.

Downing’s Specialist Lending team recently announced it has passed the £500 million milestone for commitments to residential property developers.

Its study found that stability of income is the most important benefit of investing in residential property for institutional investors.

Around 41% chose that compared with 36% who highlighted the diversification benefits of residential property investment compared with equities and bonds.

Around a quarter (23%) said the key benefit was the level of yield or income from investing in residential property development.

Parik Chandra, Partner and Head of Specialist Lending, Downing LLP said:

“The current tough economic conditions in the UK created by rising interest rates and inflation have understandably concentrated minds among institutional investors.

It is instructive that they are not losing faith with property development finance as an asset class but recalibrating their strategy to focus on specialists in the sector who can demonstrate a strong track record.”