Macroeconomic concerns drive investors towards development finance – Downing

Rising concerns about tough economic conditions are reshaping how institutional investors engage with property development finance firms, research by Downing has revealed.

Around half (45%) of institutional investors said they were ‘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 were ‘quite’ concerned.

According to the study, these worries are changing the way institutions invest in senior debt for property development finance as an asset class.

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

The study found that stability of income was 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 at 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.”