Commercial lending to have sluggish year

The recovery in commercial lending will be continue to be subdued this year, the UK Commercial Property Update from Capital Economics has found.

The main reason is a weak supply of credit from lenders, while investors remain cautious.

Prohad Khan, property economist at Capital Economics, said: “While our view is that 2020 probably marked a low point for lending, the recovery will be unspectacular for a couple of reasons. For one, the near-term availability of credit remains weak.

“After all, in the Bank of England Credit Condition survey, lenders indicate that there will be little change towards lending to commercial property in the coming months as pricing remains a concern, after a balance of minus 21.3% reported that the availability of credit fell in Q1.”

City University research found that new lending totalled £34bn in 2020, which was down 23% from 2019. Even then, half of that activity was refinancing deals.

Property loan defaults rose from 3.2% in 2019 to 4.6% in 2020, while total under-performing loans, which also include those where a term had been breached, increased from 4.8% to 8.6% of all outstanding loans.

Khan added: “Overall, we think that investors will still face tight lending conditions this year.

“And those that are able to source finance will probably pay a higher premium to secure loans, at least outside of industrial deals.

“At the same time, we think demand for new loans will remain constrained as the recovery in most property sectors is expected to be slow, even as the economy rebounds.”

So far, LSH report that investment activity in Q1 remained subdued, largely due to a drop off in office transactions.

Any upturn in the second half of the year is likely to be slow.

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