CFI: Commercial


Look locally to beat downturn


by Rob Lankey, managing director, Commercial Mortgages, Aldermore


i wrote in this column earlier in the year about the way in which the commercial prop- erty market could be divided into two: the London market, which has remained fairly re- silient and where rents have continued to rise, and the rest of the country, where the out- look has been less rosy. However, the recently pub-


lished ricS commercial market Survey for the third quarter of 2011 shows that London’s ability to buck the national trend may be coming to an end. rents in London are expected to fall for the first time in a year and, out- side London, rental expecta- tions have turned even more negative. demand has fallen across


all sectors of the commercial property market, with the retail sector having seen the biggest downturn. rental ex- pectations have fallen sharply for offices (where capital val- ues have also fallen) and de- velopment starts have fallen across all sectors.


Sober reading the ricS report makes so- ber reading and paints a pic- ture of a commercial property market that has felt the effects of the slower economy and is being held back by increasing pessimism about the future. if you study ricS data


in more detail you see that, overall, occupier demand for commercial property has fallen sharply (from a net bal-


ance of +10 in Q2 to -11 in Q3). demand for retail space has also declined, whereas demand for office space has remained largely flat, with the north being the most down- beat region. unsurprisingly, rental ex-


pectations have also weak- ened, with office rents falling at their fastest pace for two years. the midlands, Wales and the South have been par- ticularly hard hit. the capital value of offices has also fallen across the country, with ex- pectations remaining nega- tive in all regions other than London. the number of enquiries


from investors has remained largely unchanged between Q2 and Q3 and, again un- surprisingly,


inducements


offered by landlords to se- cure lettings have increased between Q2 and Q3. induce- ments have risen across all market sectors but most sig- nificantly for retail space.


Downturn this downturn in fortunes for commercial property should not come as a big surprise. the summer and autumn of 2011 is a period that will be remembered for its endless stream of negative news: the worsening eurozone crisis, debt ceiling issues in the uS, weaker manufacturing fig- ures, rising unemployment and high inflation. the com- mercial property market has traditionally reflected the general state of the economy and the current situation is no different. as economic con- fidence continues to remain uncertain, so the commercial property market falters. if truth be told, the best we


“Despite a generally negative national picture, there are still pockets of opportunity and the trick is for brokers to understand where these pockets exist in their local area. Local networks can be invaluable and it can also pay to revisit existing clients to identify where business opportunities may exist”


can hope for in the immediate future is no further deteriora- tion, with a slow but steady recovery kicking-in during 2012 and beyond.


Prospects So what does this mean for commercial mortgage bro- kers? are their prospects for the year ahead as gloomy as the general market outlook, or are there reasons to be more optimistic? the good news is that indi-


vidual brokers can tactically exploit local opportunities that buck the general trend. We’ve seen plenty of good examples of that happening with brokers capitalising on business deals that are there to be done. For example, at aldermore we’ve experienced a big increase in applications for smaller value loans (typi- cally less than £250,000).


despite a generally nega-


tive national picture, there are still pockets of opportunity and the trick is for brokers to understand where those pockets exist in their local area. it goes without saying that this is a time when local networks can be invaluable and when it can also pay to revisit existing clients to iden- tify where business opportu- nities may exist. the other side of the equa-


tion, when it comes brokers’ future fortunes, is where to place the new business oppor- tunities that have been identi- fied. news out at the time of writing this article confirms that the Project merlin banks missed their third quarter tar- gets for lending to small busi- nesses by £200m and they are £900m short of hitting this year’s annual target. Smaller lending institu-


tions (and i’m not simply re- ferring to aldermore; there are a number of active spe- cialist lenders in the market) have demonstrated that they are perhaps more in-tune with the needs of small and medium sized businesses and are better able to satisfy their needs. Part of the reason for this is because smaller finan- cial institutions have a desire to find ways to get deals done; if deals don’t initially stack-up when they’re first presented, we try to find an alternative solution which meets the needs of both the applicant and ourselves. We’ll only say no if we believe there is no other way to make the deal happen. it’s at times like this when


the market is less than buoy- ant, that those relationships will pay dividends.


mortgage introducer DECEMBER 2011 49


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