BANK lending for commercial property is continuing to fall, according to a study by agents Jones Lang LaSalle.
The report shows that, in total, lending in the last quarter of 2009 fell by £2bn to £242bn. The figure includes lending by building societies.
This continued the downward trend established in the second quarter of the year. The last time there was a fall previous to that was at the end of 1997.
The year-on-year growth in the volume of real estate lending has fallen considerably, from £26bn in December, 2008 to only £1.3bn, in December, 2009, the lowest growth recorded since June, 1997.
These latest figures may come as a surprise at a time when investment in commercial property is on the increase again.
Tim Luckman, director in Jones Lang LaSalle’s North-West valuation advisory team, said: “Against the backdrop of a significant increase in investment activity, investment sentiment and increasing prices at the prime end of the market, the further reduction in outstanding debt might seem surprising.
“Many banks, particularly the German lenders, are now back in the market and finding that there is strong competition between banks to secure the best product. However, equity remains plentiful for the right opportunities and many vendors who are repaying debt are not re-leveraging in the short term leading to an overall reduction in debt levels.
“The real estate workout teams, while getting to grips with problem loans are not de-leveraging as much as many people expected which holding up the overall level of debt to the sector.
“Competition between banks is likely to put pressure on loan-to-value and margins in the short to medium term.
“The most immediate issues for commercial property debt remain the large increase in refinancings due in 2010 and 2011 and the number of CMBS maturities due.
“This has the potential to create significant pressure in the commercial property banking sector while banks are reluctant to lend on secondary properties and poorer cashflows – an understandable reluctance while the occupational markets remain weak.”
It was reported last month that commercial property investors enjoyed capital growth of 3% in December, according to Investment Property Databank (IPD). This was the highest monthly figure in the 23-year history of the IPD monthly index. The figure beats the 2.9% delivered exactly 16 years earlier, in December, 1993, at the end of the last major property recession.
