Commercial property loans highest for six years, finds influential DMU report

Commercial property lending rose by more than 50 per cent last year with lenders other than banks rapidly entering the market, an influential new report has found.



However, leading figures are concerned that a reluctance to lend to speculative developments – particularly in the regions – may prevent SME businesses from expanding.

The findings, a snapshot of the UK’s commercial property market in 2014, are contained in the latest De Montfort University Leicester (DMU) Commercial Property Lending Report.

Used by law firms, lenders and banks around the world, the report – compiled by DMU’s Bill Maxted – provides data to the Bank of England for its twice-yearly Financial Stability Review.

Mr Maxted, senior lecturer at DMU’s Leicester Business School, has compiled the report twice a year since 1997.

The independent study analyses data provided by around 65 banks, insurance companies, building societies and asset management companies.

It found that the value of new loans being made on commercial properties was £45.2billion by the end of 2014, compared with £29.9billion in 2013. It was the highest new lending figures since 2008.

Outstanding debt fell from £180billion in 2013 to £165.2billion at the end of 2014. Insurance companies and other non-bank lenders made 25% of new loans, while bad debts more than halved in the past year.

Lending intentions remained strong, with 82% of lenders surveyed intending to make more loans. However, the report shows that the market for commercial development finance remained challenging. 


Only 17 organisations were willing to lend against fully pre-let development but the number falls to seven for 50% pre-let, 50% speculative schemes and just five for speculative development.

Melanie Leech, chief executive of the British Property Federation, said: “The CRE 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 large 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 finance 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.”

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Peter Cosmetatos, chief executive of the Commercial Real Estate Finance Council (CREFC) Europe, said: “It’s good to see the UK CRE finance market normalising after some very tough years.


“While some may worry that the market is becoming so competitive that it may be overheating, the report in face shows a more complex picture with plenty of opportunities for the right lenders.

“There are continuing challenges both for development finance and for small ticket lending, two areas where few lenders seem active, but which are critically important for the economy, especially in the regions.”