UK - Bank of England figures show that real estate lending in the UK recovered slightly in the first quarter of 2009, but Jones Lang LaSalle (JLL) has warned that secondary assets remain a significant problem.

JLL's quarterly lending report, published on Thursday, showed lending increased by £3.2bn (€3.77bn) in the first three months of 2010, following declines in the previous two quarters. Annual figures also showed a relatively small increase in real estate lending from £19bn in March 2009 to £2.3bn in March 2010.

Jeremy Handley, director of JLL's valuation advisory team, said he saw little chance of bank lending picking up in the short term, although competition between banks for prime assets had forced down margins.

Pointing to relatively strong liquidity for better quality assets, he said: "At the prime end, the problem is getting debt into the market - bizarrely, at that end of the market you have a huge amount of capital coming in. The real gap is at the other end, for assets where, for example, there is more capex required."

International investors with equity to invest, including pension funds and sovereign wealth funds, had boosted demand for prime, but Handley said the correction in this section of the market had not been replicated in the secondary segment.

"When people came back into the market, the occupational market was foundering. Now it's stronger but you don't see strengthening demand for regional offices, for example," he said.
In the meantime, pension funds are unlikely to replace banks as lenders - at least, not in new developments - Handley said.

Henrietta Podd, fixed-income director at Evolution Securities, recently speculated that pension funds would likely plug the gap left by banks in infrastructure funding.
However, few have followed the South Yorkshire pension fund's example in providing funding for development projects. The scheme last year invested £11.8m in a Welsh shopping centre redevelopment.

Handley said: "Lenders are shying away from risk. One or two life companies have suggested that they might, but I don't really see a lot of other sources coming in."

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