It's a favourable environment for developers and investors…
The demand for commercial property finance is robust, suggest industry experts, as a dearth of available housing, plus the recent base rate reduction, provide advantageous conditions for investors.
In Q2 2024, UK commercial real estate investment volumes increased by 6% quarter-on-quarter to £12.2 billion, according to CBRE, regarded as the largest commercial real estate services company in the world. This brought H1 investment volumes to £22.1 billion – and in comparison with other major Western European markets, the UK was the only market to record a rise in 12-month investment volumes.
Broker turned entrepreneur, Ian Humphreys – the CEO & founder of Brickflow, an online marketplace for specialist property finance – confirmed that the market is thriving and identified bridging as particularly popular as a solution for developers.
Humphreys (pictured left) spent 12 years as an adviser in the residential & commercial property spaces. He set up his business in 2021 after pursuing his own property development projects and experiencing firsthand the challenges developers faced. He reports that Brickflow saw 2,966 loan searches in Q1 - 50% more than for the whole of 2023, indicating the strength of demand.
“Acute shortages in UK housing supply continue to create a favourable environment for investors and developers,” Humphreys told Mortgage Introducer. “The requirement for commercial property finance remains strong. Auction activity remains strong with motivated sellers, or their lenders, seeking a quick exit, so those with the ability to transact swiftly are benefitting, and bridging finance is undoubtedly flavour of the month right now.”
Base rate cut impact on commercial property investors
Clearly, the Bank of England’s recent decision to reduce the base rate from 5.25% to 5.0% is a welcome move for many in the industry, after four years of waiting for the rate to come down – and developers could feel the benefits as much as anyone.
“The impact of those 14 consecutive interest rate hikes has seen investors carrying too much debt being forced to sell in sub-optimal conditions and fairer value opportunities coming to market,” Humphreys explained. “For every 1% base rate increase, a developer needed £10,000 in equity per £1 million borrowed. When you extrapolate that across the circa £65 billion of annual borrowing across bridging, commercial mortgages and development finance in the UK, that’s an additional £3.25 billion borrowers have to find this year in equity, to complete the same amount of property transactions as when the base rate was 0.1% - a colossal gap.”
In Humphreys’ view, property investment and development are ‘a full-circle win’ for the economy, in terms of the associated benefits.
“It creates jobs, tax revenues and improves our housing and infrastructure, so it makes sense for whoever is in power to support and promote the industry,” he suggested. “For me, the political priority when it comes to property is solving the UK’s chronic housing shortage, because without houses to sell and buy, everyone suffers, not least the mortgage industry. One obvious quick win would be for the government to incentivise property investors through equity loans and / or tax breaks to enable more houses to be built.”
In a market that’s calmer than it was several years ago but retains some volatility, certainly, Humphreys believes that brokers have a key role to play.
“Volatility always sees borrowers seek certainty from experts,” he said. “It’s even more important for investors to seek the help of someone who lives and breathes the market, understands its nuances and has access to as much of the lending market as possible. As a borrower, it’s far too tempting to default to a trusted lender, but the chances of this providing the best deal are close to zero, so we always recommend seeking the advice of an expert.”
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What support does the commercial property market need?
Humphreys supports a major overhaul of what he considers an “archaic planning system”, and improved government funding for developers. “Less available equity means less finance on offer, creating a liquidity crunch rather than a credit crunch, reducing developers’ borrowing capabilities and negatively impacting the mortgage industry,” he reasoned.
Gavin Diamond (pictured right), CEO of short-term finance provider Inspired Lending, agreed that there was an uptick in business.
“Demand for commercial and residential property finance, in our case bridging, is robust,” said Diamond. “The market has grown broader and more complex, with a wide variety of lenders offering different products, each with their own unique lending appetites and approaches.
“The diversity in the market today requires brokers who can navigate these options effectively. Specialist brokers have always been, and continue to be, an invaluable resource in the market. Their expertise is crucial. whether it be securing the best price, ensuring flexibility, obtaining leverage, or prioritising speed. This tailored approach is essential for achieving the best possible outcome in any financial transaction.”
