Understanding Valuations and Making Decisions in a Challenging Market

As a qualified chartered surveyor, I understand the difficulties of reporting values in a challenging market. You’re therefore right to assume that I might have more sympathy than others on the complexities involved in reporting values in the current market. 

Market evidence is retrospective.

Valuations rely on market evidence, which is by its nature, retrospective. This means that they are based on transactions that have already happened. In a challenging market, there are typically fewer transactions occurring, which makes life more difficult for the professionals we rely on day in, day out. 

According to the latest Colliers Snapshot Report, year-to-date investment volumes have declined by 66% in the office sector, 69% in industrial properties, and 55% in hotels, among others. 

When evidence is scarce, valuers are compelled to consider less favourable sources, such as ongoing transactions, properties marketed for sale, and discussions with agency teams regarding market sentiment. 

This brings a level of subjectivity to the valuation process, so it’s as important as ever to choose a valuer with knowledge of the specific geography and sector. 

The importance of Loan-to-values and the staying power of great borrowers

While we rely on valuers for their expertise in this analysis, it is ultimately our decision as lenders whether to lend our money against a given asset. Sensible loan-to-values are the most straightforward place to start. Taking a sensible approach helps mitigate potential value fluctuations and safeguards both lenders and borrowers. 

Pricing risk is of course important so you are compensated appropriately but ultimately, it’s LTV which protects you.

Beyond LTVs, it is also crucial to consider the borrower’s capacity to navigate uncertain times. Do they have other assets? Is their gearing sensible? What other cashflows do they have? And are they sustainable? Have they demonstrated experience in overcoming challenging periods? We must conduct thorough due diligence to determine if borrowers possess the staying power required to succeed in the face of market volatility. 

Supporting Great Borrowers with Good Fundamentals

This wouldn't be the first time we've seen property values fluctuate or decline. History has shown that those with the resilience and staying power to work through challenging times are ultimately the ones who will be successful. Fortunately, there are still lots of great borrowers seeking deals on assets with strong fundamentals. At Ortus, we remain committed to supporting these borrowers to seize valuable opportunities even in a challenging market. 

Get in touch

If you're a broker looking for support in navigating the complexities of property valuation in today’s challenging market, click here to make an enquiry.  Our team of experienced professionals is dedicated to helping you find the right solutions for your clients, even in the most demanding circumstances.