The latest lenders report by high-end estate agency Savills has revealed that areas of the UK property market are still under-served by sufficient levels of finance, despite a rush of new entrants into the market.
In its report, authored by senior director of valuations William Newsom, Savills reported that 46 institutions had begun offering debt for the first time during the last year. The firm also found that the overall number of lenders entering the market over the last three years stood at 150.
Nonetheless, the CEO of CREFC Europe, Peter Cosmetatos, has cautioned that those developing commercial property schemes below the radar of major institutions may find it difficult to source debt funding.
“New lenders are welcome, but where parts of the market are crowded, others – notably development and small ticket deals – remain under-served,” he said. “Variety and innovation in sources of debt and debt products can help address that.”
CREFC Europe argue that investors’ hunt for yield, along with continued restrictions around new supply, tightening regulation and a prolonged retreat by many banks, has helped to create the conditions for a structural diversification of the real estate debt market. With non-traditional capital increasingly seeking out and finding opportunities to enter this market, the dearth of reliable data and transparency is becoming ever more apparent.
Representing lenders and debt investors, CREFC Europe works with regulators and policymakers to enhance understanding, education and transparency in the market place. Peter Cosmetatos wants to see a more strategic and holistic approach to support a sustainable and effective real estate finance sector. This, he believes, would allow investment capital to reach development projects and Europe’s regions beyond the major gateway cities.
“The growing market presence of debt funds and alternative lenders has been immensely positive for the sector – and not simply because it has driven down pricing for borrowers,” Cosmetatos added. “Investors are able to access the attractive characteristics of real estate debt returns, while financial system resilience is enhanced by a more diverse range of products and strategies.”
“Now we have to address the informational challenges of the real estate debt market, especially as the recovery of CMBS, the only really transparent part of the market, remains uncertain. This is important to help both investors coming into an increasingly competitive asset class, and regulators keen to protect the financial system from the next property crash.”