Increase in lending for commercial property: what this means for landlords
Academics at De Montfort University report that new lending to the UK commercial property sector rose by £19.6 billion in the first half of 2014, with the figure coming from a more diverse group of lenders than before. But what's the bigger picture?
Some good news
Certainly the rise is good news for commercial landlords. It's the highest figure since 2008, and more than 50% higher than the lending figure from the same period in 2013, suggesting that lenders have a much stronger appetite for investment. Better still, there are signs that existing debt is under control. Total outstanding debt against commercial property fell from £180.3 billion at the end of 2013 to £171 billion. New lending was driven more by equity than debt, and loan to value ratios appear to be falling.
A changing market
This is welcome news after a period so dry that concerns were raised about the number of commercial properties being converted to residential use, and the government started blurring the lines between residential and commercial property by giving entrepreneurs greater freedom to start businesses in their homes. All of which indicates that there is room for more consistent growth in the market again.
As Peter Cosmetatos of the Commercial Real Estate Finance Council (CREFC) Europe told Property Wire: "It’s good to see the focus of the De Montfort report increasingly shift from legacy problems to a diverse and growing lending market. It is to be hoped that ongoing regulatory developments support a period of healthy growth."
However, one piece of data does sound a note of caution. 80% of active investors reported that they were ready to invest in London, and just 46% would do so in Northern Ireland: an imbalance seen across the country.
What's more, Liz Pearce of the British Property Federation notes that the shift towards equity finance, and the continued lack of debt finance, mean that speculative development remains difficult, commenting: "While lender caution in this area is totally understandable given events in the past few years, there are parts of the country where new, high-quality business space is urgently needed, particularly for SMEs. Speculative projects are often the only ones that cater to this type of enterprise."
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