UK real estate debt investing set to boom as a new government can address planning issues and boost construction
‘Whilst buy-to-let investors are benefitting from double digit increases in rents across the UK, the cost of higher interest rates and the increased tax burden, means we’d expect many private investors continue to exit the market. In addition, we have seen the closure of many open and closed-ended property funds which have suffered from the issue of a liquidity mismatch. This will strengthen the appeal of investment in real estate debt which can give investors the chance to build a varied portfolio and the opportunity to buy in and out of investments when it suits.
Which sectors will debt providers be backing?
The UK continues to face a shortage of housing infrastructure, which will continue to support property prices, despite the higher costs of borrowing. Widespread predictions of a major slump in residential prices linked to higher borrowing rates seem to have been overstated, and with many private investors continuing to exit the market we will see a further reduction in the supply of rental stock which will continue to fuel residential rent rises, currently running at a year on-year increase of approximately 12%. There is both the opportunity and liquidity within the Build to Rent (BTR), Private Rented (PRS), Purpose-Built Student Accommodation (PBSA), and Co-Living spaces which will continue to see growth from a rise in demand that build rates can’t match.
We are able to serve the needs of developers operating in those sectors with flexible loan terms such as no interest coverage ratio, which has been a difficult restriction for those with built stock looking to exit or refinance. We’d expect that the prime London market will be insulated from price drops given the city’s economic strength and appeal to international as well as wealthy UK buyers, although political uncertainty in an election year and higher taxes will weigh on values.
We would also expect life sciences to continue to see a rise in investment. It remains a nascent sector in the UK but its appeal is broadening based on ageing demographics, increased healthcare spending, the advances of robotics and AI and an R&D revolution which is fuelling lab space demand from numerous small start-ups rather than big pharma.
Quality and location will be more important than sector
The low interest rate environment encouraged property investment purely for yield on cash. We think it is now more crucial to know the sector and back high-quality schemes in the right location. Location and quality have in fact become more important than yield on debt or cost and it is more important than ever to back the right sponsors with enough long-term capital to see them through the cycle. As prices bottom out, we will see opportunistic acquisitions for prime locations.
At ASK we already have a pipeline of loans which will close in Q1 2024 and they cover a variety of sectors. We expect we will see more residential opportunities than others but there are still strong prospects in sectors such as offices, retail, logistics and leisure where requirements are evolving and those able to address market demand will have a credible offering.
2024 brings challenges and opportunities
Whilst the lead up to the Autumn election will perhaps hinder progress, we are likely to see a boost in productivity alongside a fall in interest rates. It is hoped that any new government can address issues at a local planning level to boost construction and help us build our way out of the downturn. Labour’s big plans for social housing could help address this issue.
As a debt provider we will be looking to back the best sites in the best locations with well capitalised sponsors who understand their product. Using this formula, we can support developers’ strategies by taking a flexible approach to our underwriting, and continue to provide opportunities for the rising number of private individuals who are choosing to invest in property debt.
ASK is a specialist, independent property lender, established by an experienced team of three partners in 2016 to provide bespoke and flexible real estate finance solutions. Building a team to complement their own unique blend of skills, they have now lent in excess of £1.45bn across over 110 transactions. Every transaction is underwritten by ASK and the company has earned a reputation as a trustworthy partner.
Metris Energy raises £2m to ‘power up’ the UK’s £22B solar economy
Metris, the first AI-powered solar energy platform for commercial property owners, has raised £2 million in a pre-Seed funding round led by Octopus Ventures and Aenu VC to revolutionise how property owners assess, install, and monetise solar energy within their portfolios.
Solar energy generation within the commercial property sector represents a £22 billion revenue opportunity. Yet the complex processes involved in the solar adoption journey – from calculating projected revenue to agreeing energy contracts with tenants – has historically prevented commercial property owners from realising their portfolio’s full solar potential. Metris is the first AI-powered “solar economy” platform created specifically to help commercial real estate owners overcome this hurdle and reap the rewards of solar energy adoption, improved energy resilience and tighter energy security.
Co-founded by ex-Octopus VC Natasha Jones and software engineer and serial startup founder William Whatley, Metris has created an end-to-end software solution which streamlines and automates the solar energy transition for commercial property owners and enables them to monetise their solar energy whilst cutting carbon emissions.
The Metris platform guides property owners through the entire solar journey, from the initial assessment to installation and ongoing energy management. The platform uses AI to generate comprehensive portfolio assessments and calculate the financial benefits of solar energy adoption in minutes, rather than days.
It also removes the administrative burden associated with selling solar energy to tenants by digitising and automating contracts. By replacing this painstaking manual process, Metris enables commercial property owners to maximise the value of their solar installations and generate a reliable new revenue stream.
It can take as little as three years to recoup the costs of solar installation, and thereafter property owners can benefit from a substantial passive source of income for over 20 years. Commercial property owners could also realise carbon emission reductions of over 14m tonnes of CO2e every year in the UK: the equivalent of taking 7-million petrol cars off the road.
Natasha Jones, co-founder at Metris, comments, “We believe that by aligning financial incentives with environmental benefits, Metris holds the key to unlock scale adoption of solar in the commercial property segment. With Metris’ AI-powered platform, commercial property owners can easily leverage unused roof space to generate extra revenue and play a crucial part in securing a greener, more prosperous future for the planet.
“We’re at the forefront of the decentralised energy revolution, driving the adoption of solar within commercial real estate, and we’re excited to be joined by expert investors to supercharge our mission to turn every building into a power plant.”
With this injection of funding, Metris will launch its end-to-end commercial solar platform in the UK this month. This includes the launch of its AI-powered portfolio assessment tool for commercial real estate owners and its billing & payments solution.
Fabian Heilemann, founder & CEO of AENU, comments “Operational energy use of buildings accounts for ca. 30% of total global energy-related CO2 emissions. Metris Energy is in a unique position to provide end-to-end solar operations for commercial buildings, by offering everything from property selection and installation to tenant onboarding, billing and payments. This innovation offers property owners a compelling commercial opportunity, whilst also advancing the green energy revolution.”
Hope Johnson, investor at Octopus Ventures, comments, “We are excited to back Metris’ vision to finally align incentives and enable every commercial property owner to generate its own renewable energy and sell this more sustainable, and cheaper, energy to tenants. Natasha and Will are helping commercial property owners reduce their carbon footprint, improve the energy efficiency of their properties, and accelerate the UK towards the large and legally binding commitments that have been made to Net Zero targets.”
Metris’ AI-powered software has already assessed over £2bn worth of commercial real estate, paving the way for thousands of property owners to reap the energy and financial benefits of solar power.
This innovation comes as international efforts to reach net zero accelerate. More than 100 countries pledged to triple renewable energy capacity by 2030 at COP28, while the UK has already committed to decarbonise its electricity system by 2035.
Faced with mounting pressures to abandon fossil fuels, solar power emerges as a compelling solution for commercial property owners, offering a dual advantage of securing renewable energy and generating additional revenue. Commercial property owners can now sign up to Metris for free to assess the solar energy potential of their portfolio.
Andrew Stanton is the founder and CEO of Proptech-PR, a consultancy for Founders of Proptechs looking to grow and exit, using his influence from decades of industry experience. Separately he is a consultant to some of the biggest names in global real estate, advising on sales and acquisitions, market positioning, and operations. He is also the founder and editor of Proptech-X Proptech & Property News, where his insights, connections and detailed analysis and commentary on proptech and real estate are second to none.