Price Chips And The Bid-Offer Spread Are Back

Hard data about the impact of the war in Iran on real estate investment markets is yet to hit the tape. But the anecdotal evidence is already becoming clear. 

“It felt like the bid-ask spread was getting a lot tighter in the first couple of months of the year, back to a normal rate,” Aboria Capital Managing Director Issie Armstrong told the audience at Bisnow’s UK Real Estate Investment And Finance Conference. 

“But since Iran, the spreads have got wide very quickly.”

Aboria, which specialises in living sectors like student accommodation and coliving, is backed by the Downing family, and Armstrong said its backer was looking for discounts of 10% to 15% on prewar prices to justify buying new assets or development sites at a time of extreme uncertainty. 

“But that’s not there right now, at least until it’s time to refinance,” she said. 

The bid-ask spread between what sellers want and what buyers are willing to pay has been a largely uncrossable chasm for the past few years.

MSCI data showed that in 2023, when interest rates were rising fast, the value of London offices put up for sale would need to fall 29% to find a level with which buyers were comfortable.

The gap might not be that dramatic today, but the conflict in Iran has taken the wind out of hopes for a sustained recovery for UK transaction markets in 2026. 

With little certainty about where interest rates end up, it is difficult for investors to say with any certainty what their potential exit price might be on an asset, Trammell Crow Head of Commercial Capital Markets Richard Fell said. 

That means investors are asking for discounts that sellers aren’t psychologically ready to offer. 

“If you're a seller, you have a mental reference that's probably anchored from before this all happened, so you kind of pinpoint that. Whereas, if you're a buyer, you're pricing nearly real-time information,” Fell said. 

The result is deals are being cancelled or, at the very least, paused. 

“There are still deals progressing, for sure,” NatWest Head of Commercial Real Estate Charlie Foster said. “But we have also seen either deals completely fall away, where people are just going to stick with their current position — why rock the boat when everything's so uncertain or at least delayed?”

That happened to Altus Senior Manager for Global Advisory Gavin Quigley. His company had been advising on a logistics portfolio deal that has died as a result of the more volatile financial outlook. 

Sectors like logistics and multifamily, where yields are lower, are most vulnerable to changes in rates affecting the economics of a deal — a 25-basis-point rise in interest rates has a bigger absolute impact when the yield is 4.5% than when it is 7%.

But income in these sectors is more resilient than in others, which will appeal to investors. 

Market participants to watch as a canary in the coal mine are debt brokers, Fell said — and those he is speaking to are doing more refinancing work than sourcing debt for new transactions, a sign of a stagnant market.

The debt market generally remains highly liquid, Foster said, with multiple types of lenders with differing costs and durations of capital all looking to lend. That means margins remain low, and lenders are willing to be flexible on deal structures. 

“There’s never been a better time to be a borrower,” she said.

But even if you can borrow, there might not be a deal to be done.