Leicester’s De Montfort University (DMU) recently announced that outstanding commercial property debts may decline to the lowest levels in ten years during 2015. This figure has been heralded as great news for the commercial property sector, but what can landlords take from the university's findings?
A turning point
The De Montfort Commercial Property Lending Report’s December publication highlighted a 1% decrease in the value of outstanding commercial property debt. The paper also found that distressed loan defaults fell from £23.2 billion at the end of 2014 to £15.7 billion by mid-2015.
The above statistics indicate that commercial property lending is finally normalising, seven years after the UK's descent into recession during January 2009. £24.7 billion was distributed in the commercial property lending market during the first half of 2015, a figure far below the £49.2 billion from the first half of 2007.
The British Property Federation's Director of Policy, Ion Fletcher, described the industry as having reached a “turning point”; debts that are being paid off are now being “cancelled out by new lending”. While Fletcher, like other commentators, believes there is still a considerable aversion to risk within the sector, the Director was also “encouraged” that lending for commercial property projects has improved.
Fresh lending for SMEs
Bill Maxted, co-author of the DMU report, explained that the commercial property sector's long-term debt issues have taken years to remedy. However, the slow but steady decline of these debts is at last restoring confidence among lenders. In fact, the sector may now be in a position where healthy debts will start to increase because of fresh lending.
Debts have continued to fall up until the present moment because spooked lenders have been reluctant to provide capital. This trend is likely to change in 2016, however, spurred on by a growing number of SMEs seeking investment. Commercial landlords may well benefit from an upsurge in demand for their properties during the new year, though it's worth bearing in mind that smaller clients could struggle to cope with rising rental prices in this new environment.
In order to make the most of rising rental values without creating a rent arrears backlog, property owners should seek the help of ethical Enforcement Agents who can carry out commercial rent arrears recovery and secure cash flows for the future.