Banks rushing back to UK commercials
Private-equity firms, pension funds and insurers face dwindling returns on loans to the UK commercial property market as competition intensifies from banks that shunned the business after the financial crisis.
A new lender has entered the market almost every week in the past year in search of higher returns as gilt yields neared record lows, according to brokers Savills Plc.
The UK banking industry avoided the market following the collapse of Lehman Brothers in September 2008 because of regulatory requirements to meet stricter capital rules.
Greater competition on commercial-property loans has narrowed lending margins by as much as two percentage points in the past year, said Anthony Myers, a real estate executive at Blackstone Group LP.
With UK commercial property values rising for the first time since 2011 and balance sheets on the mend, British banks are increasingly willing to offer loans backing offices, stores and industrial properties.
"Having to compete against the energy being shown by the banks, the amount of fat in the margins has been squeezed out considerably," said Ashley Goldblatt, head of real estate lending at Legal & General Group Plc Investment Management.
The company set up its real estate lending business three years ago and is on track to have loaned £500m (€596m) by the year-end.
Greater competition is narrowing interest-rate margins and starting to slow the influx of new entrants.
"I'm skeptical about the amount of business the senior debt funds are likely to do because interest-rate margins have come down," Newsom said.
"They have to provide investors with a certain level of return, so they're in a bit of a bind."
British commercial real estate values rose for the fifth straight month in September, posting the biggest gain since April 2010. (Bloomberg)