The property lending market has seen 150 new entrants in the last three years, according to a new report from Savills.
The firm’s 27th annual financing property presentation, which was released today, identified a further 46 new entrants to the lending market over the last 12 months, bringing the total to 150 new lenders in the last three years.
According to the report, 60% are classified as ‘other non-bank lenders’, although those lenders only did 13.5% of lending in 2014, but they are forecasted to grow to 30% market share by 2020.
Savills said the increased competition had sparked a focus on loan syndication for the bigger ticket deals, with French and Japanese banks increasingly active as well as other nationalities.
William Newsom, senior director of valuations at Savills, said: “Syndication has been driven by investment houses which want to get into commercial property lending but don’t have the platform to do so.
“Lead arrangers are selling down to these parties which not only is good for balance sheets but also spreads risk. This process not only has allowed foreign lenders to enter a market which can provide better returns than their own, but also has empowered those existing lenders seeking bigger ticket opportunities.”
Savills said that while there has been a jump in overall lending by 50%, the debt mountain is reducing and real estate lending is presenting higher returns when compared to other asset classes.
Yields are low but so is the cost of money, indicating there is scope for yields to go lower, the report said.
It also noted that while loan to value ratios (LTVs) for senior debt remain low, the addition of mezzanine debt can see LTVs rise from around 60% to more than 80% - levels last seen in 2006.
Newsom said: “The mezzanine debt market is on the increase but it’s both mature and well respected. It is provided by specialists who understand the risk and rarely lend on smaller or prime deals. The figures work best on higher yielding properties of above 6.5%.”
Savills said that the commercial property markets have seen increased confidence with more than 50% of total capital invested in the UK being outside London.
Furthermore, figures show that 2014 saw the highest ever volume invested by non-domestic parties outside London, and this looks likely to continue in 2015, Savills said.
Real estate continues to outperform other asset classes and consequently institutional weightings to property remain higher than normal.
Savills outlined future opportunities in the core sectors of retail, office and industrial but noted that alternative sectors such as leisure, student housing, senior and healthcare all offer long leases and growth in demand. It found 75% of the largest deals that have taken place during 2015 include alternative investment sectors, in particular student housing and hotels.