Banks are hurting property market - LSH
A lack of bank lending is threatening the recovery of the Midlands property market. That's the view of Ian Kibble, regional director of the Birmingham office of Lambert Smith Hampton (LSH).
He said banks were actively reducing their exposure to real estate which risked "threatening the fragile recovery seen in property transactions and activity seen in recent months". But he added new funders are entering the market to help address bank lending problems.
The commercial property consultancy said there was a 17.6 per cent increase in activity in the region at the end of 2010, according to its latest quarterly analysis with office and industrial property performing particularly well. Retail performed less well with a 34 per cent drop.
Kibble said lending by banks to the property sector had "weakened substantially" and property owners and cash-strapped investors were now seeking other funding options.
He said: "Credit availability is going to be a key factor in sustaining the upturn during 2011. Banks have retreated from the commercial real estate sector for the first time in more than a decade as traditional lenders attempt to rein in their exposure to property loans.
"The level of outstanding debt to commercial property has dropped for the first time. The annual rate of growth in lending to commercial real estate was 20 per cent in 2008. Last year it has reversed to a three per cent decrease. This drop in bank lending applies to both UK and overseas banks, although German banks seem to dominate the lending that is actually happening."
He added: "If the recovery is to be sustained, the money has to come from somewhere. In a climate of high inflation and limited returns many are recognising the sustainable income benefits of commercial property and many pension funds are expected to increase their real estate allocations.
"Additionally some other sources of capital have appeared on the market and might partially fill the void left by the banks. Several investment managers, including AXA, Schroders and Eurohypo, have developed strategies to take advantage of the shortage of bank lending and have launched non-listed funds to provide loans. This sort of a solution will fill go a long way to fill the void left by the banks."
