Stock levels ‘hampering’ property lending
BANK lending is returning for commercial property deals although the market is hampered by shortage of stock, according to property consultants King Sturge.
King Sturge said despite more bank lending being available than three months ago, a shortage of good quality new, and existing, properties for sale was stifling recovery.
King Sturge’s Leeds-based valuations partner, Simon Cullimore, said the “flicker” of recovery seen in the spring strengthened during the summer as cash-rich investors capitalised on better returns from prime commercial property while other investment returns, including from cash, remain at an all-time low.
Mr Cullimore said: “We are now thought to be passed the bottom of the commercial property market for prime properties with some yields falling and prices rising as cash-rich buyers snap-up prime properties.”
However he says that, overall, owners are still holding onto properties hoping that values will rise further as economic growth returns.
He said: “Institutions and property owners are holding onto assets and cash buyers strongly prefer properties with a ‘bullet-proof’ income on long occupational leases.
“This has resulted in more money chasing very few opportunities and led to significant gains in value during the past few weeks. The best examples include high street bank properties originally sold on a sale-and-leaseback basis where prices have now reached the same level as the market peak.
“There is also evidence that shorter leases will be considered as long as the basic quality is very good.”
While renewed bank lending is to be welcomed and any caution in the banks’ approach is necessary, Mr Cullimore said that the stock shortage was partly due to the banks’ own actions since the economic difficulties started.
In order to achieve a balance the market needs a greater volume of properties for sale. One answer is likely to come from the Commercial Mortgage Backed Securitisation (CMBS) market – where a group of investors lend money to a borrower, overseen by an overall lender – Mr Cullimore added.
“Another source of stock may come from the troubled Irish banks where the Irish Government’s National Asset Management Agency (NAMA) is due to start selling early in the UK in 2010.
“The combined new product from these two sources, together with the new lending, should provide real impetus for the commercial property market in 2010.”
