Development finance will be crucial in helping break the current deadlock and restore property sector activity to previous levels, according to Berwin Leighton Paisner’s second Real Estate Development report.

Based on a survey of 100 key players across the market some 44% of respondents predicted that new projects would be swinging into action over the next 12-24 months.

The survey, carried out during the Spring, identifies trends and confidence as the market moves into the next cycle. The development market in 2010 remains challenging for all concerned but developers, investors and banks alike are all of one mind that development finance, including joint venture arrangements and equity participation, is the way forward. Plugging the funding gap has been a major issue and JV arrangements, along with forward-fundings and forward-sales, all demonstrate innovation in a difficult climate. Availability of financing is a barrier, according to 37% of developers.

The criteria to lend is currently the major stumbling block, limiting the amount of finance on offer from banks and the breadth of opportunity for developers. This creates a highly cautious approach for lenders with as many safeguards built in as possible. Some 40% of bank respondents said that they had provided development finance previously but that it was currently on hold, and equity has become more common as a financing component than debt.

Consumers are seen as leading the UK out of recession – retail developments, second only to offices, lead the pack amongst developers, investors and banks alike as most likely to get funding. London and the south east are reckoned to see the first signs of new developments and recovery in the UK.

Claire Milton, Real Estate Partner, said: “This remains a challenging market with much uncertainty; breaking the deadlock for economic recovery is a priority. The message is very clear. There is a scarcity of new developments and funding is the issue. Both equity finance and creative, workable solutions appear to be the way forward if the real estate development opportunity is to be at the forefront of a return to activity and good health.”