Big potential in commercial property


June 27, 2012

Danny Waters is chief  executive of Enterprise Finance

Of all the sectors out there, commercial property has arguably been hit the hardest since 2008. It has had an extremely tough ride over the past three to four years — and commercial mortgage finance has suffered as a result.

But at Enterprise Finance we believe that the worst has passed for commercial property and that the sector is set for recovery. Admittedly, there’s every chance it will be a slow recovery, as the economy remains unstable, but it will be a recovery nonetheless.

This may seem contrarian given the current state of the economy but there is a huge amount of pent-up demand for commercial property — especially owner-occupied property.

The problem, until recently anyway, is that this demand hasn’t been catered for. After all, it’s been well-documented that high street banks simply aren’t lending in any material way on anything slightly outside the box. In one survey recently, the banks even said as much themselves.

But the arrival of new specialist  lenders, such as Aldermore and Shawbrook, has started to turn things around. These lenders have a far bigger appetite to lend on commercial property, and are less pedantic when it comes to underwriting deals.

Unlike some high street banks, they look for reasons to lend rather than reasons not to lend.

So, with the arrival of new lenders, slowly but surely the sector is starting to open up. The latent demand for commercial property, which we are seeing every day, is finally being met with increased supply of commercial loans. The result is a sector that has more potential than you might think.

It’s worth noting that the commercial property market has also been stimulated by the resurgence of buy-to-let. Where a shop or other commercial unit has flats above it, it is suddenly a far more attractive investment proposition given the strength of rents.

Investors are betting on capital growth by buying ahead of the curve but at the same time are able to hedge themselves via strong rents.

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