Even though some of the mass media tend to focus on the negative aspects of recent UK commercial property sector problems, the underlying situation has improved dramatically over the last 12 months. A report out this week has confirmed that the amount written off by UK banking institutions in relation to commercial property loans has reduced dramatically with further improvement expected. This will surprise many people especially when you consider that the US, Europe and other areas of the world are still struggling from an economic standpoint.
It was interesting to see that the value of defaulted commercial property loans on the books of UK lenders fell by around 50% to £23.2 billion last year. The survey also suggests that bad loans were again dramatically reduced by around £22 billion during 2014. On average each commercial property lender in the UK has around 15% of defaulted capital compared to the overall size of loan books. There would appear to be number of reasons for this recovery over the last 12 months as well as hope for the future.
While the spectre of defaulted commercial property loans has obviously created a hangover of properties which lenders are looking to jettison at the earliest opportunity, prices have increased in the UK. Indeed many experts forecast that the UK commercial property market will continue along its recovery path despite the fact that the UK economy is perhaps taking a breather at this moment in time. The significant reduction in so-called distressed loans means that commercial lenders across the UK can now look to grow as opposed to firefighting issues from the past.
While 2008 is still head and shoulders above current figures, with around £50 billion worth of credit issued, it was interesting to see an increase in commercial property loans in the UK last year of around 51% up to £45.2 billion. In a traditional world you might expect that UK lenders would be able to grab the lion’s share of this particular market but their troubles of recent times seem to be catching up with them.
This survey, conducted by De Montfort University, shows that UK banks are now losing market share of the new loans sector falling from 43% in 2013 to 39% in 2014. The major benefactors seem to be North American banks having increased their market share over the same period from 5% to 11%. It seems as though UK lenders will need to refocus, re-energise and reconnect with investors with significant goodwill lost over recent months.
While there is no doubt that the UK economy is one of the strongest in the Western world there have been signs of consolidation just prior to and just after the UK general election. The US market has experienced a number of false dawns with regards to a strong recovery and the European market is still reeling from the Greek debacle. However, if we put the performance of the UK economy in perspective, it is not difficult to see why there has been a significant improvement in the UK commercial property market.