Lockdowns still not enough to subdue market liquidity

The past 12 months have been an interesting time in the debt capital markets and indeed, the property sector in general. What started with a cloud of COVID-19 uncertainty – as we all held our breath to see how the markets would respond – ended with more capital in the market than we have ever seen before.

Even this most recent round of lockdowns in the nation’s financial hub, doesn’t seem to have led to a lack of confidence or uncertainty. Capital markets are still more liquid than ever and have largely remained unaffected. It is our view that this will remain the case.

As we’ve moved into the new financial year, we’ve seen leverage continue to trend upwards with pricing at historical lows.

Residential markets are definitely showing signs of growth with a sense that only COVID-19 is holding back prices. Of course, some markets have already seen substantial growth, particularly luxury markets and regional areas. We do have some concerns around how this could impact affordability in specific markets.

Commercial markets are dependent on sector with industrial and logistics being the most robust, while retail and office are facing the most headwinds. As with all commercial asset classes, location, tenant covenant and lease tenure are driving optimal debt and/or sale outcomes. We are regularly seeing well located assets with long-term income streams trade at yields below 4.5% – sometimes significantly below.

So what do we think FY22 will bring?

We expect the following debt market trends to continue:

• More new capital market entrants will emerge this financial year. We continue to be approached on a weekly basis by new funds entering the market. These entrants depend on advisers like Stamford for distribution.
• The banks are back and will continue to push for market share. We noticed this trend early in 2021 with all four majors actively pursuing quality investment and construction deals. As always, the banks will be the cheapest if you can meet their criteria.

Overall, the depth of funds in the market, both bank and non-bank, will continue to drive great funding outcomes for our clients. We’re confident that this financial year will continue to build some of the trends in market from last year, regardless of this current round of lockdowns and restrictions.

Interested in our in-depth analysis of the 2020 capital markets? We surveyed over 100 lenders to understand how the markets recovered post-COVID-19 and what opportunities lie ahead. Read our Debt Capital Market Survey report here.