The latest Bayes UK Commercial Real Estate Year report shows that loan origination volumes hit £48.6bn (€55bn) at the end of 2022 helped by early refinancing, a period that also saw non-bank lenders expand their lending book.

The figure was 2% lower than the previous year but still represents a record year compared to other years, the report said.

The last six months of 2022 were dominated by the increase in interest rates, which left many real estate investors worried about the incremental cost of financing. This, according to the report resulted in increased refinancing activity in the fourth quarter of 2022 and borrowers refinanced early rather than waiting longer in 2023, or extended loans into 2024.

The report, authored by Bayes Business School’s (formerly Cass) senior research fellow Nicole Lux and research assistant Alexandros Skouralis analysed the Bayes CRE Lending Survey which polled 81 lending organisations, comprising 37 banks and building societies, 11 insurers, 33 other lenders.

The findings show that the alternative lender segment including insurance companies now provides 31% of new loans.

Also, debt funds dedicated 55% of their new lending to development projects, with lenders confirming their financing support for transitioning assets, carbon-zero assets and assets with clear, improved environmental, social and governance credentials.

The report reveals that outstanding loans in 2022 amounted to £177bn compared with £174bn a year earlier. The share of other lenders rose to 19.6% of total outstanding loans and 39% of lenders by number.

In terms of sector, the report shows that there are still only 11 lenders quoting terms for secondary retail, of which 9 are banks. In comparison 40 lenders quoted terms for prime office.

Development lending made up 23% of new origination in 2022, showing a new increase in commercial development finance, which for the first time post-pandemic includes speculative development finance.

The Bayes report indicates that debt funds have taken on larger-scale asset transitioning projects, and supplied 61% of commercial development finance.

“We are definitely seeing that large institutional borrowers are rushing to negotiate the best debt deals. 

“As long as the income remains stable, new asset valuations are holding up and borrowers are negotiating their refinancing as early as possible,” Lux said.

Mark Manson-Bahr, global head of real estate finance at Allen & Overy, said: “2022 was a year of two halves with greater stress in the market due to macroeconomic risks, inflation and realignment of global supply chains affecting deal volumes in H2. It is pleasing to see from the Bayes 2022 report that real estate finance lenders are responding to this challenging environment to offer flexible credit solutions and certainty of execution, which continue to be prized by borrowers.

“Despite the retrenchment of some traditional lenders, increased activity from alternative credit providers looking to deploy capital will provide a competitive environment for borrowers seeking new financing or refinancing options in 2023.”

Chris Gow, the head of debt and structured finance at CBRE, added: “Banks are well capitalised, their liquidity remains strong and most continue to support borrowers and look for new origination opportunities, albeit at more conservative levels than before.

“We are also fortunate to have a very active and continually growing roster of non-bank Lenders who are eager to step into any further dislocation.”

Neil Odom-Haslett, president of the Association of Property Lenders, said: “As the Bayes report highlights, the world of real estate started the year strongly but as the year moved forward the impact of these events caused the market to react with valuation corrections and increased interest rates – it really was a year of contrasting halves.”

Peter Cosmetatos, CEO of CREFC Europe, said: “Unsurprisingly, given the rapid change in the interest rate environment, the research reveals rising stress, particularly in the parts of the lending market – like smaller challenger banks and especially debt funds – that serve higher risk real estate.

”However, there is little to suggest widespread real estate-related problems in the financial sector. The market is diversely funded and has not experienced excessive exuberance this cycle, and leverage has remained at sensible levels.”

Euan Gatfield, the head of EMEA CMBS and loan ratings at Fitch Ratings, said: “2022 lending volumes held up remarkably well-given LTVs were reined in and loan interest rates spiked.

”However, acquisition financing accounted for a lower share of lending than in any of the previous 15 years, and was largely the preserve of insurance companies, debt funds and overseas banks.”

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