New real estate lending plummets in pandemic
Commercial real estate lending in the UK plunged during the first half of the year as the coronavirus pandemic hit activity – and more pain is expected heading into 2021.
The latest UK commercial real estate report from The Business School, covering the first half of 2020, reveals that new loan origination dropped by a third year-on-year, to £15.5bn. Only 14 lenders surveyed had made a loan larger than £100m during the period, and roughly a fifth made no loans whatsoever.
Report author Nicole Lux said that, although the short-term effects of the pandemic on the financing markets were only just starting to show, “the long-term effects will impact lending and banking into next year and beyond”.
Commercial real estate lending in the UK plunged during the first half of the year as the coronavirus pandemic hit activity – and more pain is expected heading into 2021.
The latest UK commercial real estate report from The Business School, covering the first half of 2020, reveals that new loan origination dropped by a third year-on-year, to £15.5bn. Only 14 lenders surveyed had made a loan larger than £100m during the period, and roughly a fifth made no loans whatsoever.
Report author Nicole Lux said that, although the short-term effects of the pandemic on the financing markets were only just starting to show, “the long-term effects will impact lending and banking into next year and beyond”.
She added: “With significantly lower leverage levels and better bank capitalisation compared to the global financial crisis, distressed loan sales and receiverships are still a long way off. However, the real estate debt cycle has entered a new phase.”
Lux and her colleagues expect that, in the coming two years, £9.5bn of retail assets and £13.5bn of alternative assets including student housing, hotels and care homes will need to be refinanced. “Many facilities will be at 85% to 120% LTV at that time,” Lux said.
Most lenders contributing to the survey no longer lend against retail assets, and have shown a particular aversion to shopping centres. But outstanding loan amounts allocated to retail assets have remained stable, with lenders extending existing loans that cannot be repaid or refinanced.
Peter Cosmetatos, chief executive of real estate finance trade body CREFC Europe, said: “This report merely hints at how commercial real estate finance might be impacted by the massive exogenous shock wreaking havoc across the economy.
“For now, typical LTVs and pricing appear to have shifted only modestly, and sensible lending terms at origination continue to protect loan books from significant stress. There is surely worse to come.”
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