New research from investment and debt advisory firm Excellion Capital reveals that UK real estate investors have started 2025 with significant concerns about economic volatility and little trust in the Labour government to address the situation effectively.
As such, confidence in both investing and borrowing has reached a concerning low.
2024 was an uneven year for the UK economy but the nation’s property sector appears to have weathered the storm well.
However, the UK government is warning of a tough year ahead as it fights to usher in a new era of stability and long-term prosperity, as illustrated by its inflationary Autumn Budget back in October 2024.
INVESTABLE ASSETS
To understand the sentiment of UK property investors heading into 2025, Excellion Capital has surveyed UK investors with investable assets of £500,000+.
More than six out of 10 (63.1%) of the investors who responded to the survey report that their investment focus for 2025 is going to be the residential sector; 19.5% will focus on hospitality and leisure and 9% retail.
Meanwhile, 8.1% are looking at the emerging mixed-use sector, with industrial (7.2%) and office spaces (5.4%) attracting the least amount of interest.
Looking into the new year, the strategic focus for most respondents is going to be investment (43.8%), followed by renovation (29.7%), development (14.1%), land acquisition (6.3%), and conversions (6.3%).
When it comes to securing financing for their projects, banks and traditional lenders are still, by far, the most popular option, with 75.9% of investor respondents preferring this avenue. 11.1% currently prefer to rely on private investors, 9.3% on debt funds, and 3.7% on joint ventures.
MARKET SENTIMENT
Turning the attention to 2025, Excellion Capital asked investors what they see as being the biggest challenge when it comes to securing debt for upcoming real estate projects.
The most common responses include ‘high interest rates’ (20.2%), followed by ‘economic volatility’ (11.5%), ‘rising construction costs impacting project budgets’ (11.5%), ‘strict loan-to-value requirements’ (9.6%), and ‘a decrease in the availability of credit and/or liquidity’ (6.7%).
Once financing has been secured, what do investors think will be the biggest challenge when it comes to completing projects in 2025?
The most common answer is ‘regulatory and/or policy changes’ implemented by the Labour government (24.8%), followed by ‘the risk of the UK falling into recession’ (20.9%), and ‘high interest rates’ (17.8%). The likes of ‘inflation’ (14%) and ‘geopolitical instability’ (7%) are also seen as significant obstacles to success.
Responsibility for guiding the nation through the vast majority of these concerns and challenges lies very much at the feet of the UK government.
When asked what they Labour should prioritise in order to improve the outlook of the UK property investment sector during their first full calendar year in power, the most common response from investors was ‘increasing economic growth’ (15.3%). This is followed by ‘addressing the cost of living’ (13.1%), ‘reducing public debt’ (12.3%), ‘reducing inflation’ (11.6%), and ‘supporting small businesses’ (11.6%).
When asked how confident they are in Labour’s ability to effectively manage the UK economy, 69% of investors report have little or no confidence at all.
LOW CONFIDENCE
All of this appears to be culminating in startlingly low investor confidence when looking ahead into 2025.
Using a scale of 1-10, with 10 indicating maximum confidence, investors were asked how confident they currently feel in taking on new investments in 2025.
The most common response was 1 (17.9%), indicating the lowest possible level of confidence. However, 36.9% place themselves between 6-10.
When asked to rank their confidence in taking on new debt in 2025, the response is even more troubling with 38.1% putting themselves at 1, and less than 17% ranking their confidence anywhere higher than 5.
‘INCREDIBLY FRUSTRATING’
Ashley Marks, Head of Real Estate at Excellion Capital, says: “Twelve months ago, as we looked ahead to 2024, there was a genuine sense of optimism in the property market that hadn’t been felt since before the pandemic.
“So it’s incredibly frustrating for investors to be now be looking into 2025 with so many obstacles and challenges still in their way, from high interest rates, inflation, geo-political pressures and, specifically in the UK, an economy that has failed to grow and an Autumn Statement that appears to have further damaged trust in government.
“There are always ways to navigate a challenging environment, and those who keep pushing forward when the sea is choppy will be well ahead of the regatta by the time the waters become more calm.”
