In its 31st annual Financing Property presentation last week, Savills reported that social, demographic, political and technological disruption is causing fundamental shifts in UK property, posing challenges but also offering opportunities for the lending industry.
Savills said that parts of the property sector are moving from a traditional based market to one where there is greater emphasis upon operational models, be it serviced offices or Build-to-Rent, with the shopping centre sector already starting to adapt.
The customary way of lending to real estate is also changing and alternative asset classes are growing in popularity and as the operational asset market evolves and becomes more established, and the sponsors achieve a proven track record, it is likely that the emerging sectors, such as serviced offices, will become more acceptable to the lending fraternity, just as retail warehousing, and more recently student accommodation, once did.
According to Savills, lenders and valuers will increasingly focus on cashflow analysis and the operational performance of the occupier. In the office sector, there will always be an element of the occupier market that requires long leases and the reduced prevalence of such leases could create a new form of super prime lending.
Ian Malden, head of valuation at Savills, commented: “The property sector has been among the last to catch up in terms of the occupier experience, but landlords are now responding to tenant demand and are focusing on service and building relationships, which will increasingly have an impact on how assets are valued, as turnover rents become more common and leases shorten. Overall, the different forms of disruption seem to be having a greater impact on property than the traditional economic cycle, which is now 10 years in duration.”