29th October 2021
Demand for commercial property continues to outstrip post pandemic supply
Summary
As we head into 2022 the market shows no signs of slowing down. You will hear from developers and estate agents alike that there are simply not enough deals to go around.
The deluge of commercial property brought by the pandemic continues to be more than compensated for by demand.
Developers in particular are seizing on commercial stock as residential prices continue to hold their post pandemic levels.
Furthermore, savvy commercial landlords are increasingly aware of the value of their stock and in some cases are taking the initiative to redevelop it.
Funny Money in the system
In addition to seasoned developers expanding their operations, the new fiscal landscape has brought new participants into the market.
Business owners in particular have been advantaged in two ways when it comes to the pandemic:
First, a number of businesses have benefited from the transition to online. Pureplay participants experienced a sales boost as customers became a captive audience during lockdown. Meanwhile, conventional retailers who were forced to expand online operations have generally succeeded in unlocking new revenue streams.
Second, capital has become extremely accessible at phenomenally affordable rates. Govenment ‘bounce back’ loans worth £50,000 have been available at the click of a button for most UK businesses, and businesses seeking greater support could receive up a CBIL loan with unprecedented ease.
During this time of uncertainty a number business owners have invested this money into reliable cash flowing assets such as property.
Lending
The story from mortgage professionals mirrors what you will hear from estate agents. Banks, who have been the first recipient of monetary expansion, simply cannot get rid of the money fast enough.
This scenario presents an interesting opportunity for first time developers. Banks who would previously have deemed certain individuals unlendable are now open to a conversation, with an increased interest rate to match.
Banks are also making concessions on Loan to GDV ratios. Whilst previously limited to 65%, some lenders are willing to increase this to 70% or even 75%.
With an abundance of cash, banks are preferring mid to larger development projects. Brokers will tell you the sweet spot for permitted development lending is around 12 units. For new build projects anywhere in the 3-10 region is considered optimum.
Regarding the kinds of development lenders will support, a preference for internal conversions rather than extensions and rebuilds remains.
Final thoughts
With up to 15 buyers for every deal the market is the hottest it has been in recent times. For prime permitted development stock you will often see a bidding contest between potential buyers.
The abundunce of money in the economy has supercharged existing developers and brought new partcipants into the market.
As far as lenders are concerned, bigger is better, and if you’re just getting started it has seldom been easier to get finance.
For a conversation about how TSX may be able to support you, get in touch at contact@tsxgroup.co.uk.