New lending to commercial property in the UK increased by over 50% and reached a six-year high in 2014 as non-traditional lenders entered the market at record levels.
New lending to commercial property in the UK increased by over 50% and reached a six-year high in 2014 as non-traditional lenders entered the market at record levels.
The value of commercial property loan originations soared to £45.2 bn (€63.4 bn) at end-2014, compared with £29.9 bn in 2013, the highest figure since new lending reached £49.8 bn in 2008, according to the independently compiled De Montfort Commercial Property Lending Report.
The total value of outstanding debt declined from £180 bn at end-2013 to £165.2 bn at end-2014, excluding loans of £16.1 bn secured by social housing.
At 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%.
These lenders have only been accounted for since 2011, when, according to the report, 'secured lending to commercial property [became] more attractive to these organisations due to regulatory changes and business opportunities created by the withdrawal of banks from this sector'.
The market seems mostly to have worked through the legacy of pre-crisis loans that characterised the last few years. The value of distressed loans more than halved in 2014, falling from £44.7 bn at end-2013 to £21.1 bn at end-2014, supported by a strong recovery in the underlying property market as well as an improving UK economy more generally.
Greater market diversification is further evidenced by the share of outstanding debt held by the top 12 lenders, which stood at 66% of outstanding debt in 2014 compared to 72% in 2013.
Lending intentions remained strong, with 82% lenders intending to increase their loan book size and 84% intending to increase loan originations.
The market for commercial development finance remains relatively challenging. Only 17 organisations are reported to be willing to lend even against fully pre-let development, but the number falls to seven organisations for 50% pre-let, 50% speculative development schemes, and just five organisations for speculative commercial development.
Melanie Leech, chief executive of the British Property Federation, commented: 'The CRE lending market recovery is now well and truly established. 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.'