In today’s Commercial Watch Episode 3, the discussion is on the commercial property sector. The UK commercial property market faced significant challenges during the pandemic. Compared to flourishing mortgage segments, it struggled considerably. Transitioning to remote work left offices vacant, while shuttered pubs and limited retail activities caused widespread apprehension. Consequently, lenders became reluctant to finance commercial property ventures, heightening uncertainty within the market.
Interestingly, certain sectors defied expectations amidst this turmoil. Less glamorous enterprises, such as takeaways, emerged as resilient performers during lockdowns. Their adaptability and essential status positioned them as unlikely success stories in an otherwise stagnant market.
Opportunities Amidst the Challenges
Despite the setbacks, opportunities arose for savvy investors and business owners. Falling property prices created a buyer’s market, appealing to those with strategic foresight. Investors willing to weather the uncertainty of lockdowns could secure valuable assets at reduced costs. For those equipped to act decisively, this period presented a rare chance to capitalise on market conditions.
However, obtaining funding remained a notable hurdle. Lenders displayed varying risk appetites, complicating financing for commercial acquisitions. This divergence in lender preferences demanded careful planning and negotiation. Borrowers needed to present robust business cases, emphasising their ability to navigate the market’s volatility.
Strategic Planning for Success
Navigating the financing landscape during this period required precision and adaptability. Investors had to assess lender criteria thoroughly, ensuring alignment with their risk profiles. Caution and strategic planning became indispensable tools for anyone entering the commercial property market. Success depended on understanding both current market dynamics and future recovery prospects.
Ultimately, the UK commercial property sector demonstrated both challenges and potential during this turbulent period. With the right approach, investors could uncover opportunities and contribute to the sector’s gradual recovery. For those prepared to adapt, this market shift offered a chance to thrive despite uncertainty.
Commercial watch Episode 3 | There is still reluctance around retail and hospitality
Consider the case of a long-established manufacturing business striving to expand its operations. The company sought to refinance its warehouses and offices to unlock capital for a lucrative new contract. However, they encountered obstacles due to reduced lender interest in the industrial sector and stricter borrowing criteria. As a result, the client could only secure a 60% loan-to-value ratio, significantly limiting their options.
To address these challenges, we introduced commercial bridging solutions, which offered a flexible approach to immediate funding needs. Bridging loans, often tailored to unique circumstances, provided the necessary liquidity. However, success depended on implementing a well-planned exit strategy. By strategically selling portions of the owned land for development, the client could repay the loan and free up additional capital. This approach solved the short-term funding issue and maximised the value of underutilised assets.
This example illustrates the importance of strategic planning in the UK mortgage market. Dynamic economic conditions often require businesses to adopt creative solutions to overcome funding barriers. It’s essential to carefully assess financing agreements, particularly when navigating markets with fluctuating lender appetites. Moreover, tailoring strategies to align with short-term objectives and long-term growth can turn challenges into opportunities.
In conclusion, this case demonstrates how businesses can successfully refinance even in complex circumstances. Creative solutions, like bridging loans with defined exit strategies, ensure financial flexibility while securing growth opportunities.
Commercial watch Episode 3 | Mixed experiences
As high streets experience a revival, consumers are returning to pubs and restaurants in growing numbers. This shift highlights changing trends, prompting a deeper look at lenders’ renewed interest in certain sectors.
Discussions with our commercial mortgage advisors reveal diverse perspectives on recent market changes. A key case involved a dental surgery with strong financial performance. Despite this, it faced rejection for capital raising during lockdown from a well-known high-street lender. The lender’s underwriter cited economic uncertainty and hesitated to approve additional equity during a challenging period.
Interestingly, the same lender has now reconsidered its stance. It now expresses confidence in this dental surgery’s prospects. However, its cautious approach persists for businesses in other sectors. This selective optimism reflects the complexities within the lending market today.
Such changes in lender attitudes underscore the importance of monitoring the evolving market. Business owners must thoroughly evaluate lending conditions before committing to agreements. Given persistent economic uncertainties and shifting priorities among lenders, the current climate demands extra vigilance.
This evolving lending landscape highlights both opportunities and challenges for businesses seeking financing. Understanding sector-specific trends and lender preferences is crucial to securing favourable terms.
Commercial watch Episode 3 | Ironically, one of the least attractive commercial businesses, takeaways, became one of the best-performing
The overall inclination to lend seems to return, albeit at a measured pace and with discrepancies among lenders and sectors. While certain lenders remain highly engaged through the government’s Recovery Loan Scheme, the revived appetite for lending is predominantly channelled into this program.
Consequently, other lending avenues are constrained, as the scheme, backed by 80% government support, understandably draws lenders’ focus due to its risk mitigation features.
Despite the broad resurgence, the financial landscape remains dynamic, with the Recovery Loan Scheme overshadowing other lending opportunities for some institutions. This intricate balance underscores the nuanced nature of the current lending environment.
Commercial watch Episode 3 | Covid caution
Many lenders are now scrutinising loan applications with a keen focus on assessing how businesses weathered the storm of Covid-related challenges. The impact of lockdowns and the strategies companies employ during these periods are key considerations in the underwriting process. Lenders are interested in the past and looking ahead to understand the business plans in the post-pandemic landscape. Moreover, lenders take a cautious approach, with concerns lingering about the potential of future lockdowns.
Connect specialist commercial and development adviser Gareth Norman says: “The commercial property market has undoubtedly seen some relaxation since Covid rules were eased. There is still quite a bit of reluctance around sectors hardest hit by the pandemic, such as retail and hospitality. Office space is an ongoing challenge, with so many business models having changed through lockdown, and therefore, it is unclear how these security assets will perform.”
Norman further elaborates on the evolving dynamics, indicating that despite the easing of COVID rules, reluctance persists, particularly in sectors hit hardest by the pandemic. Given the changes in business models during lockdowns, the uncertainties surrounding the performance of office spaces continue to pose challenges for lenders in their underwriting processes.
Commercial Watch Episode 3 | As the high streets fill up again and consumers return to pubs and restaurants, it’s interesting to see if lenders’ appetites return, too.
“Lenders’ primary focus is on the owner-occupier space, where the underwriters remain pragmatic about assessing financial performance through the pandemic. However, one lender will entertain a 100% LTV facility for the strongest trading businesses, with an aggressive five-year pay-down period, so innovation appears to be returning.”
He adds: “Property development is also experiencing an interesting surge. However, because of Brexit, there is a shortage of materials, and therefore build costs have increased. How this will affect development projects is unclear as it requires either smaller developer profits or higher selling prices.”
Lenders, such as Allica Bank and Shawbrook, have been lending throughout COVID-19 and continue to show a real appetite for commercial. This will put them in good stead with advisers who have found them a reliable lending source and have built relationships and familiarity with them.
Commercial watch Episode 3 | Property development is experiencing an interesting surge
It is good to see returners like Together and Cynergy in the market. Also positive are the launches of new lenders, like Recognise Bank, with longer-term plans to shake up the market. However, Recognise remains cautious and restricts its distribution through limited partners until more confidence builds in the market.
Connect for Intermediaries commercial director Kevin Thomson predicts a cautious return to pre-pandemic lending for the rest of the year. Subject to no further setbacks, he is confident of a much better lender market in the first quarter of 2022.
We’ve reached the end of our publication on “Commercial Watch Episode 3 | Understandable Wariness In Wake of an Extraordinary Pandemic.” Until next time, stay “Connect!”
