Official statistics showing an apparent slowdown in commercial property lending are failing to take account of the surging commercial mortgage- backed securities market.
Bank of England figures out this week showed a marked fall in the volume of net new lending to property, to £2.5bn in the fourth quarter of 2004 from a record high of £5.6bn in Q2 2004. The total amount outstanding to real estate now totals £115bn.
Sue Foxley, Jones Lang LaSalle’s head of UK research, pointed to the limited availability of product. But Barry Osilaja, vice-president at JLL corporate finance, warned that the figures accounted for only about two-thirds of lending to commercial real estate because they did not include lending by building societies, insurance companies, securitised debt and lending by overseas banks’ representative offices.
Osilaja said: “CMBS issuance, on a pan-European basis, rose from €13bn in 2003 to €25bn in 2004, and is expected to hit €30bn in 2005. If CMBS were included with other sources of lending, outstanding debt would be closer to north of £140bn.”
Investor demand for fixed income assets, and bank efforts to move as much debt as possible off balance sheet – ahead of the Basel II reforms in 2007 – were leading banks to dramatically scale up their CMBS programmes, Osilaja added.
JLL head of valuations Jeremy Handley added: “A lack of liquidity or sufficient product in the market will drive geared investors to look to refinancing as a means of extracting performance from property.”
