December 11, 2013
The UK commercial property market is continuing its strong recovery, driven in large part by a resurgence in regional markets and financed by more adventurous borrowing by investors, a juxtaposition of three new reports reveals. According to Lloyds Bank’s twice yearly Commercial Property Confidence Monitor, around three quarters of the small and medium sized commercial property agents surveyed for the report expect a surge in activity over the next six months, led by especially strong confidence levels in Scotland, South West England, North West England and the Midlands. The results are mirrored in the latest Savills’ commercial development activity survey which found that the UK’s commercial sector grew at its fastest rate on record during November. Meanwhile, another report from Laxfield Capital claims that investors are willing to take on more debt for new deals to take advantage of the new confidence in the market.
The Lloyds report is based on a survey of 500 real estate professionals and found that across the UK 88 percent of commercial property fund managers expect the value of assets to increase over the next three to six months compared to just 10 percent at the same point in 2012. The survey claims that 80 percent of major businesses agree and nearly two-thirds (63 percent) of major them plan to increase their investment commitments over the same period.
In Scotland, 90 percent of small and medium sized real estate firms anticipating an increase in market activity, a remarkable turnaround from the 9 percent recorded at the same time last year. The pattern is repeated across the country with respondents in the South West registering 86 percent, the North West 77 percent and the Midlands 75 percent.
‘We are seeing our London based mid market investors and developers actively looking to grow and they are largely having tangible success. Outside London is quite a different story and many quality assets are trading in the regions to London and internationally based funds and major investors,’ said Marty Green, managing director of mid-markets corporate real estate at Lloyds Bank Commercial Banking. ‘In larger cities across the UK, local investors and developers, whilst talking more positively, are remaining cautious and focussing on pre-commitment, which is improving with some signs of step change, but is best described as subdued,’ he added.
‘The UK market in 2013 has been stronger than many expected it to be. It’s becoming an increasingly competitive environment for developers and investors as well as the banks,’ said John Feeney, global head of corporate real estate at Lloyds Bank Commercial Banking. ‘The huge upswing in confidence among fund managers in the past year is perhaps the most significant bellwether yet of the market’s recovery and, with a majority of this cohort and large businesses looking to invest more, the momentum is continuing to gather pace,’ he explained.
However the report also sounds a note of caution because there is doubt that the regional markets will be able to meet growing demand from investors. Respondents from SMEs expressed particular concern about planning issues, occupier confidence and the capacity of the regions to facilitate growth. The research shows that London, Manchester and Birmingham are seen as the top three destinations for investment over the coming six to 12 months.
According to the latest Savills’ commercial development activity survey over a third (34.5 percent) of developers saw a sharp increase in commercial activity in November compared to 30.2% on balance in October. Savills claims that this is the highest figure ever recorded in the 10 year history of the survey. The survey also confirms that recovery is evident outside London and the South-east, with 44 percent of developers in the other UK regions reporting an increase in commercial activity in November.
Simon Collett, head of building consultancy at Savills, said the survey high showed the commercial sector was “truly over the worst of the recession. What is even more reassuring is that this isn’t just being driven by London considering the strongest increase in activity this month was outside the South East.”
The growth is also driving investors to take on more debt to take advantage of the market. The average loan-to-value ratio sought by investors increased to 58.3 percent in the third quarter of 2013, up from 43.6 percent in the first three months of 2013 as more properties were sold and confidence grew that financing would be available, according to the report from Laxfield Capital.
According to Laxfield, the highest levels of demand for finance this year have come from office-building investors at 36.8 percent of all requests by value, followed by investors in retail property at 22 percent. The report looked at around £25 billion of commercial real estate loan requests this year.