London-based hedging and debt advisory specialist JCRA has shared with Real Estate Capital insight into the data behind the aggregate transactions it has advised on over the past two years.
The data cannot be considered a representation of the whole UK real estate lending market but as the experience of a prominent UK real estate intermediary, they provide a perspective on market trends.
The information – which includes UK real estate finance deals advised on from a debt or hedging perspective – covers the period from 1 July 2016 to 30 June 2018, reflecting around 100 transactions for each of the two years and a total debt volume of £4.8 billion (€5.4 billion) and £7 billion, for the first and second year, respectively.
The four charts below, complete with explanation from JCRA’s head of real estate, Shripal Shah, highlight the key trends.
“The first 12-month period was immediately after the UK’s EU referendum result, while the second year reflects the market getting back to whatever normality means,” explains Shah. “The second year reflects a more liquid market, with more lender appetite. The UK banks are not necessarily going up the capital stack, but alternative lenders including challenger banks are.”
“Refinancing is the clear trend across the market,” says Shah. “The expected interest rate rise was a key driver for the increase in refinancing activity, especially in the most recent year. The increase in development loan volumes reflects the type of deals we’ve been active on in the last year, since we increased our focus on real estate debt advisory. To achieve a return, investors are developing assets, rather than buying expensive income-producing prime assets.”
“A lot of challenger banks are relatively new to the market in terms of real estate finance teams and strategies, and some have recruited former commercial real estate bankers in the last year or so,” explains Shah. “They have more than quadrupled their volume across our sample, comparing the two years, albeit from a low base. The five largest UK high street banks have continued to dominate, however; they froze after the Brexit announcement, but have come back strong.”
“Real estate investors are focusing on higher-yielding and more operationally intensive asset classes,” explains Shah. “Operating assets and hotels and leisure saw a doubling in loan volumes, while retail dropped.”