Commercial property lending hits six-year high

NEW lending to commercial property increased by more than half to reach a six-year high in 2014, as non-traditional lenders entered the commercial real estate market at record levels.

The value of commercial property loan originations soared to £45.2bn at year-end 2014, compared with £29.9bn in 2013 – the highest figure since new lending reached £49.82bn in 2008 – according to the De Montfort Commercial Property Lending Report.

It showed that the total value of outstanding debt declined from £180bn at year-end 2013 to £165.2bn at year-end 2014, excluding loans of approximately £16.1bn secured by social housing.

At year-end 2014, insurance companies and other non-bank lenders accounted for 25% of new loan originations. Outstanding debt also saw increased diversity, with insurance companies representing 12.7% of the total debt, up from 10.2% last year, and other non-bank lenders representing 6.5%, almost doubling their 2013 share of 3.7%.

Melanie Leech, chief executive of the British Property Federation, said: “The CRE [commercial real estate] lending market recovery is now well and truly established, with the further reduction of outstanding loans and the significant fall in the number of distressed loans indicating a healthier and more competitive market than we have seen for years.

“The increasing diversification of lenders has been marked over the past year, and we feel this is broadly positive for the market. Not only will a larger presence of non-bank lenders provide our sector with alternative sources of finance – lenders with different investment horizons and business strategies; a more diverse finance market can also contribute to financial stability by spreading exposure to UK real estate among a greater range of investors.

“We are concerned to see a reluctance to lend to speculative development, however. This is of particular importance for SMEs, whose growth we fear could be constrained if there is not readily-available business space to suit their needs.”

Lending intentions remained strong, with 82% lenders intending to increase their loan book size and 84% intending to increase loan originations.

As property values have risen so has the proportion of debt with a loan-to-value (LTV) ratio of 70% or less. Such loans made up 76.7% of the outstanding debt at year-end 2014, compared to 63% so reported at year-end 2013 and 52% at year-end 2012. Outstanding debt that had a LTV ratio of between 71% and 100% continued to fall, reducing from 18% at year-end 2013 to 14.3% at year-end 2014.

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