New loans in commercial property at six-year high, finds influential DMU survey

Confidence has returned to the commercial property lending market as new loan originations hit a post-crisis high and the value of outstanding loan books saw its first increase since 2008, according to the most comprehensive study of the UK’s commercial property lending market.



The De Montfort Commercial Property Lending Report, published today, found that £53.7 billion in new loans were made during 2015, compared to £45.2bn the previous year.

And the number of loans recorded as “distressed” – where lenders record problems repaying – has fallen by almost 50%.

Academics at De Montfort University Leicester (DMU) have been compiling the report since 1997, using data submitted by almost 60 lenders such as banks, building societies and insurance companies.

It is seen as one of the most comprehensive indicators of the property market worldwide and is used by the Bank of England within its Financial Stability Review.

This year is the final report to be compiled by Bill Maxted, an academic consultant within Leicester Business School and former lecturer Trudi Porter. It is being taken over by Dr Nicole Lux who will oversee an expansion and digitization of the report.

The 2015 year-end report found that the value of commercial property has continued to rise and that increasingly, insurance companies are becoming the big lenders in commercial property.
 
Real estate in London takes the lion’s share of the loans, with 43% of the total outstanding debt secured against property in the capital – the most ever recorded by the research and up from 26% in 2010.

The 2015 report demonstrated lenders’ continued preference for big ticket lending to both development and investment projects. Only fourteen banks (30%), building societies and insurance companies  were prepared to write a loan of £5m or less for commercial investment projects, compared to thirty one (67%) who would do so at above £100m.
 
RELATED NEWS:
* Dr Nicole Lux becomes new author of the Commercial Property Lending Report
* Discover more about DMU's Leicester Castle Business School
* DMU researcher leads World Bank financial aid review

Ion Fletcher, director of policy (finance) at the British Property Federation, said: “The fall in value of distressed loans to very low levels coupled with a gradual increase in new loan originations hints at a robust and stable commercial property lending market. It will be interesting to see whether commercial real estate lending accelerates from here or grows in a more measured way.

“Given growing investor interest in the regions over the course of 2015 and the government’s efforts to devolve greater powers to local areas, it is perhaps surprising that lenders show such a strong preference for central London. Lenders also remain reluctant to lend at small ticket sizes, which raises questions about how smaller regional projects can access the finance they need to succeed.”

Peter Cosmetatos, chief executive of the lenders’ trade association CREFC Europe, said: “The report confirms that in terms of fundamentals, sentiment and discipline, the market was in a good place coming into 2016 and the uncertainty provoked by the EU referendum.”