Bringing a broader perspective to the UK market

An international perspective forged through cross-border relationships can reap dividends in the UK, says Ronan O’Dowd Global Head of Commercial Real Estate, Standard Chartered. Interview first published in Real Estate Capital Europe.

How would you describe lending market conditions in 2024?

There was a lot of focus on interest rates in 2024. With the backdrop of interest rates coming down, our view was that property valuations were stabilising, even when there was talk of ‘higher for longer’ rates, leading to higher investment volumes and more investment led lending activity rather than refinancings.

My view was, and is, that the slower pace of interest rate cuts has already been priced-in, so that short term base rates would actually start to have to go up to reverse the trend of what I see as winds at your back, rather than the winds in your face that we were seeing in prior years.

To what do you attribute your success in the UK lending market last year?

We have a global commercial real estate lending platform and we look at each of our presence markets and look to invest where we see the best risk-adjusted returns. Going into 2024, we viewed the UK as having strong fundamentals, particularly in core asset classes such as housing, logistics and data centres. Ongoing dialogues with our clients reinforced that they had similar views, that the UK real estate market was well placed, particularly on these defensive asset classes.

Which deal was your highlight of the year in the UK, and why?

The project which got people’s attention was Greystar’s redevelopment of the biscuit factory in Bermondsey into rental housing, which represents a significant investment in London’s housing market.

This development financing had several key attractions. Firstly, build-to rent is a very defensive asset class – especially given that the housing dynamics in the UK, and particularly in central London, are massively underserved. Secondly, this project came with a regeneration aspect, creating 1,600+ housing units from a series of industrial buildings. Lastly, it provided affordable housing into a market with a severe shortage.

I have been doing financings for 25 years, and this is the type of deal that you can look back on having a positive and lasting impact in the markets we support.

Did the UK market present specific challenges in 2024?

The main challenges we faced during the year was volatility in rates, and on alignment from market participants on the recovery of the market.

While there is a general expectation of rates coming down, the medium-term swap rates have been more volatile, which impacts cost of debt and debt serviceability. While we had a strong view on the UK presenting good investment opportunities in defensive asset classes, there was opaqueness in the market with inconsistent views, and the challenge was actually looking through the volatility and lack of certainty.

Will the country be a particular focus for you in 2025?

The UK will continue to be a focus for us in 2025 and beyond, given it is a market with strong fundamentals in the commercial real estate space.

The supply, demand dynamics are generally in our favour. With interest rates coming down, you should see a rebalancing between financial assets and real assets, including commercial real estate. We expect to see acquisition volumes improve, and that will give a clearer basis for valuations.

We saw higher investments volumes in the last quarter of 2024 and I think that you will see that momentum grow. There is obviously a negative impact around how the economy bleeds into operational performance; if the economy is a little weaker you should see some impact on your occupiers. But then you may also see rates come down quicker than otherwise anticipated and may have an offsetting effect to a more negative economic position in the UK in 2025.

Across Europe, what do you see as the main challenges and opportunities for European real estate markets in 2025?

The ECB and BoE’s rate cutting cycles should help support growth in the sector in 2025. The backdrop of falling inflation and anticipated interest rate reductions is creating renewed confidence in the property markets. For instance, prime asset values are showing positive shifts with stabilising yields supporting recovery.

Our expectation is that the UK property market should recover faster than markets in Europe as a general statement, with markets like Germany in certain asset classes taking longer to recover given nuances on demand and supply. However, we will continue to look to support our clients in 2025 across the wider European market if we like the underlying asset class and fundamentals of the specific micro-market are generally constructive.

There have been suggestions DeepSeek endangers data centres’ phenomenal growth rates, as the cost of training AI coming down reduces demand for data centres. However, I see these technological breakthroughs as simply providing a better use case for AI and should result in technology being embedded more into corporate and consumers’ daily life, potentially creating more demand.

The economic backdrop is not ideal, but within that, there are definitely going to be areas by sector or geography which are attractive. While macroeconomic conditions are important, it is one of many factors that drive our views. I think you will see the commercial real estate sector actually perform better in 2025, even though the underlying economic conditions may be weaker.

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