After a pause around the time of the general election in May, finance requests have come back strongly in recent months according to the latest Laxfield UK CRE Debt Barometer.
The fifth version of the Barometer, produced by Laxfield Capital (Laxfield), recorded more than £11bn of total finance requests received by the firm in the second and third quarters across 154 deals. Momentum has grown stronger as the year has progressed, with the third quarter being the second-most-active since the Barometer was launched in 2012.
Notably, 60% of finance requests related to acquisitions during the six-month period. Laxfield describes this as a “remarkable progression” given that acquisition-related finance accounted for just 12% of the total in 2012 when the market struggled under the weight of legacy loans.
Fewer LTVs of 70% or more were seen – either indicating that borrowers have become more cautious, or perhaps that the more aggressively levered borrowers have worked through their short-term-hold strategy and are now looking elsewhere for dislocated markets with more yield compression opportunity.
But with almost half of LTVs at 65% or more, Laxfield Capital co-principal Emma Huepfl said leverage “should not be ignored as a risk factor”. Moreover, valuations average around 35% higher than they were at the lowest point in 2008. A downturn comparable to that seen in 2008 could put many loans in excess of 100% of value.
The Barometer points to the growing strength of the smaller loan market. While large-ticket loan requests dominated the pipeline by volume in Q2 and Q3, with 60% of requests worth £100m or more, 60% of the loan count pipeline is for deals worth less than £50m.
“Activity continues to spread out of the core market and into smaller tickets,” said Huepfl.
Strong activity was also seen in the regions (outside of London), which are now outstripping the capital in terms of demand for finance. The Barometer also found that demand for alternative asset finance declined somewhat during the period but still remained high relative to historic levels, accounting for 40% of requests.
For the first time, this version of the Barometer included small-ticket loans of less than £5 million and development deals, reflecting increased activity in both areas.
Launched in January 2013, the Barometer provides an overview of current financing requirements in the UK commercial real estate market, measuring current statistics against the pool of data collated since the inception of the Barometer. The data pool analysed by Laxfield exceeds £75bn across 904 deals.