Challenging economic times are making landlords think creatively

Property investors look to pay down debt as interest rates rise

Large portfolio professional landlords¹ are looking to pay down debt as they focus on optimising their portfolios in the face of challenging economic conditions, new independent research* conducted on behalf of property business expert Handelsbanken shows.

This year’s Handelsbanken Professional Landlords Survey – based on nationwide research among large UK investors with an average of 29 properties worth c £14 million each – shows professional property investors are acutely aware of the risks and challenges facing the sector.

It found 91% are looking to pay down the debt on their portfolios in response to rising interest rates with a focus on ensuring they are truly optimised in terms of yields and risk/return profiles.

Around two-thirds (66%) of professional landlords disposing of assets say they are bearish about the market while 24% say they cannot afford to upgrade portfolios to comply with new sustainability regulations such as Energy Performance Certificate rules in England and Wales. 

However, given market uncertainty, many investors will likely be waiting for opportunities to buy at reduced cost with a view to longer term value creation, re-purposing assets (as Handelsbanken is seeing) and / or capitalising early on shifts in working patterns back towards more office usage.

That belief is also reinforced by the fact that 58% of our sample said they are looking to increase their exposure to commercial offices, and just over half, perhaps surprisingly, are looking to increase their exposure to retail property. The research shows that there is still strong confidence in UK property as an asset class.

Simon Bradley, Chief Credit Officer, at Handelsbanken said: “While our Professional Landlords Survey shows how they are positively managing the current challenges within their sector, it also reveals a clear ambition for future investment, by taking advantage of forecast market movements and adding value through active management. 

“In our experience of the market, investors will require significant investment to meet current tenant demands for greater amenities to achieve meaningful returns.”

The research comes amid heightened interest in the property sector with both residential and commercial areas undergoing price corrections. Higher interest rates and lack of housing supply are also presenting challenges.

James Sproule, UK Chief Economist at Handelsbanken said: “In contrast to owner-occupiers, professional landlords will often have a more detached and less emotional view of property values and are more likely to act in a way that recognises market realities. That’s why we are seeing landlords sensibly paying down debt, while others are increasingly alert to opportunities in sectors such as offices. 

“More broadly, with interest rates still rising, it is difficult to see residential prices stabilising in the short term. At least with inflation remaining well above its target level nominal prices will not reflect the real full impact of price declines. Looking forward, the peak of interest rates, likely to be in August, will set the scene of a price recovery in the autumn and early 2024.”

Read the 2023 Handelsbanken Professional Landlords Survey below.

This research follows Handelsbanken’s inaugural property report in 2022 (pdf) Opens in a new window, conducted amongst SME landlords with a minimum of four properties in their portfolio. On average, respondents owned 7.5 properties with an estimated total market value of £2.76 million.

¹ 62% of the sample classified their business as “real estate investment” while 22% classified their business as “landlords” (residential and commercial) and 16% classified it as “property management."

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Notes to Editors

* Research conducted by PureProfile in March 2023 among 200 UK professional property investors. The sample was split equally among those owning five and 15 properties, those owning between 15 and 25, those owning between 25 and 50 and those owning more than 50. On average respondents own 29 properties worth a value of £14 million. There were 17 respondents in each of the UK’s 12 regions apart from Northern Ireland where there were 13. Around 62% of the sample classified their business as “real estate investment” while 22% classified their business as “landlords” (residential and commercial) and 16% classified it as “property management”. Some 46% of the sample said their property holdings included commercial offices; 41% commercial retail, 41% student lettings/HMOs; 40% commercial industrial; 27% residential non-student lettings/HMOs; 23% residential static park homes; 23% commercial leisure; and 8% commercial healthcare, including hospitality and holiday parks.

Information on Handelsbanken plc

Handelsbanken is the trading name of Handelsbanken plc, which is incorporated in England and Wales with company number 11305395. Registered office: 3 Thomas More Square, London, E1W 1WY, UK. Handelsbanken plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 806852.

Handelsbanken plc is a wholly-owned subsidiary of Svenska Handelsbanken AB (publ).

Handelsbanken was established in Stockholm in 1871 and in Sweden, it is one of the country’s leading banks with a nationwide branch network. The Bank’s home markets are Sweden, Norway, the Netherlands, and the UK. It also has operations in Luxembourg and the USA.

In the UK, Handelsbanken is a relationship bank with a decentralised way of working, a strong local presence due to a nationwide network of branches, and a long-term approach to customer relations. Handelsbanken specialises in providing personalised and competitive banking services to both businesses, individuals, and property investors, and offers wealth and investment management services through its UK subsidiary Handelsbanken Wealth & Asset Management. Each Handelsbanken branch operates as a small business enabling it to make decisions at a local level and provide a bespoke service. The focus is always on the need of the individual customer and not on the sale of specific products.

For information regarding sustainability at Handelsbanken, please see here: