Figures released on Friday reveal that the number of commercial property developments completed during 2012 was half of that recorded in the previous year.
According to the IPD UK Annual Property Index, only 40 commercial developments were completed last year, one of the lowest levels of new space arriving on the market in the last thirty years.
The reasons for this are clear. Over the past five years banks have become an unreliable source of finance and investors are more wary of taking risks. As a result only developers with privately sourced investment, or those with tenants already in place, have been able to proceed with projects.
Phil Tilly, IPD’s managing director for the UK and Ireland, isn’t surprised by the figures as the buildings completed would have begun construction in 2009 and 2010, two of the most difficult years of the financial crisis.
However, the lack of new developments has had a positive impact on returns for completed assets. These rose to 7 per cent, the highest rate since 2007, as demand for the diminishing supply of quality business accommodation increased.
Perhaps surprisingly, given the difficulties still facing the retail sector, developments in this category delivered the best returns. But it was healthcare and leisure property, student accommodation and hotels which accounted for over 40 per cent of completions.
Liz Peace, chief executive of the British Property Federation (BPF), said the research highlights the difficulties in securing finance.
“No longer is it a given that you will walk into a bank and walk out with the necessary funding on agreeable terms for a development project.
“While alternative providers are slowly coming forward, their appetite remains selective and shows a bias towards central London,” she said.
She also draws attention to the recent De Montfort report which shows that only five per cent of new lending in 2012 went to commercial developments.
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