The Government have recently announced that in order for banks to qualify for their bonuses in 2011, there will need to be a rise in commercial lending for the year. This new measure was introduced in order to see more funding being ploughed into small businesses to aid economic recovery.
The crash that began in 2008 saw a huge drop in property values, but some new statistics show signs that commercial property values are on the rise. But it seemed clear in the last quarter of 2010 that the market was not going to recover very quickly, as banks were still holding back on commercial mortgages leaving many small businesses unable to buy business premises.
Tenant demand for commercial property in the UK has stabilised. That’s the conclusion of a recent report from the Royal Institution of Chartered Surveyors (RICS). The RICS survey has revealed that tenant demand for commercial property had a net balance of zero in the final quarter of 2010, up from minus six in the previous quarter.
Commercial property sales in the first quarter of 2011 are also set to be extremely strong, RICS reports. 18 per cent of surveyors believe that demand would be strong over the next few weeks with many claiming that the commercial property market is set for its best quarter in four years. Activity is set to increase and sales look to be strong.
The data also seems to defy the rather gloomy predictions about the quantity of available properties. Four per cent of surveyors reported an increase in supply of commercial property, not a decrease. Major property group Knight Frank reported in January that the limited number of commercial properties available in London was resulting in steep rises in the capital’s commercial property prices.
The picture for London, inevitably, is not the same as the rest of the country, with regional patterns of growth and recovery. Knight Frank has claimed that this was because “regional variations are becoming increasingly visible with the picture on rents and capital values broadly reflecting the emerging economic recovery”.
Despite increasing demand for commercial property, securing a business loan or commercial mortgage to buy premises remains a problem for many small businesses. A recent report from the property company CB Richard Ellis has found that the number of commercial mortgage lenders in the UK has fallen by a third since the pre ‘credit crunch’ days of 2007.
A report has recently shown that less than 70% of commercial lenders were actually lending money for the purposes of commercial property purchases. In the last 4 years, almost 40 commercial lenders have withdrawn from the market. Lenders continue to pick the loans that they are comfortable with lending making things difficult for companies to get to where they want to be in terms of expansion.
To try and increase the amount of commercial mortgages to small businesses, the Government recently announced higher business lending targets for UK banks. Bank bonuses for chief executives will partly be determined by their success in achieving these higher commercial mortgage targets, but many experts are sceptical that banks will loosen their purse strings in 2011.
For the foreseeable future, it would appear that growth will be slow, and it may take some time before lenders see the commercial market as less of a risk.
Timothy Frodsham writes for Just Commercial Mortgages.com the UK’s No.1 site for the latest commercial mortgage rates and commercial property finance news.
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