Commercial lending is set to rise by 32% in next five years, increasing from £90bn in 2023 to £118bn in 2028, the latest analysis from Together has revealed.
Debt and the cost of borrowing continues to be at peak levels – with a third of property developers, landlords and investors citing inflation (30%) and high interest and mortgage rates (27%) as the biggest challenge to their plans this year.
However, Together’s report, ‘Opportunities and Outlook; the future of commercial property’, found a bullish appetite among commercial developers, investors, and landlords either exiting or diversifying portfolios to mitigate falling yields and revenues.
Among all respondents, 23% said student housing offered the most appealing property investment opportunity over the next 12 months, followed by housing developments (21%) and luxury residential properties (19%).
While 29% of property investors were aware falling property values could make securing lending difficult this year, this did not prevent the majority from looking to capitalise on emerging growth sectors.
Nearly one in five (18%) of property investors were most excited to pursue retail projects this year, followed by housing developments (17%) and student accommodation (16%).
For all respondents, office space (17%), hotels (15%) and industrial or manufacturing sites (13%) triggered the most hesitancy.
A further 44% were planning to de-risk and shrink their property portfolio over the next 12 months.
Around half (48%) of those looking to de-risk planned do this in the next three to six months, with about a quarter (23%) planning on doing it sooner.
A fifth (22%) of all respondents were not confident about being able to access additional finance if they needed to, but total secured commercial lending was still predicted to rise by 32% from an estimated £90bn in 2023 to £118bn in 2028.
More than half (52%) of commercial landlords, investors and developers surveyed felt that specialist lenders were best equipped to deal with their particular lending needs.
Two-thirds (69%) of respondents anticipated the amount they must borrow to support their investment strategy would rise in the next 12 months.
More than a fifth (23%) of respondents felt the commercial market was improving, with more opportunities, while 18% said the opportunity to generate more money is high and 16% that purchase prices have reduced, allowing them to snap up deals and new opportunities.
Chris Baguley, group channel development director at Together, said: “As we look at the UK commercial property landscape, the scope and diversity of the opportunities is impressive.
“Whether its student housing, housing/residential development or repurposing retail and other larger sites, the next few years are going to provide significant growth for the UK commercial property market.
“The optimism of the sector, combined with the economic recovery, mean those investors that are well poised with the right finance support will ultimately be in the best position to capitalise on these opportunities.”
Rob Thomas, economist and principal researcher at the Intermediary Mortgage Lenders Association (IMLA) added: “In the short term, while inflation is coming back under control, the higher interest rate environment will take some adjustment for commercial property businesses, landlords and developers– including de-risking portfolios and diversifying into new growth sectors.
“However, for those looking for growth in the medium to longer term there are opportunities across the sector this year onwards.
“And the insight on the ground is that the sector is in rude health. The research we’ve undertaken shows that, while some property professionals are scaling back or exiting the market, the majority are committed to developing their portfolios and many are even taking advantage of the temporary reduction in property prices to expand. When looked at in the round, the scale of the opportunity is significant.
“To put it in perspective, total secured commercial lending is predicted to rise by 32% from an estimated £90bn in 2023 to £118bn in 2028.”
