Commercial Mortgages - UK - May 2021

OVERVIEW
Key issues covered in this Report
COVID-19: market context
Economic and other assumptions
Covered in this Report
EXECUTIVE SUMMARY
Impact of COVID-19 on the commercial mortgages market
Figure 1: Short-, medium- and long-term impact of COVID-19 on the commercial mortgages market, 24 May 2021
The market
Market size
Figure 2: Gross value of loan originations, 2017-26, (£bn)
Market forecast
Figure 3: Aggregated value of outstanding debt on loan books secured on UK commercial property, 2017-26 (£bn)
Market segmentation
Market trends and drivers
Companies and brands
Industry structure
Company profiles
ISSUES AND INSIGHTS
Unleashing savings could lead to an interest rate crunch if policy makers need to quell inflation
Figure 4: Past and projected inflation rates, Q1 2016 – Q1 2025, (percent)
Jump in online shoppers offers a way out for flagging retail properties
THE MARKET – KEY TAKEAWAYS
Originations anticipated to rise 8.5% in 2021 as restrictions are phased out
Return of economic activity to drive originations growth, and debt reduction
Effects of COVID-19 driving reassessment of office space and retail redevelopment
Cautious lending will leave gaps for non-banks and work synergistically with new options opened up by PDR changes
MARKET SIZE
Impact of COVID-19 on the commercial mortgages market
Figure 5: Short-, medium-, and long-term impact of COVID-19 on the commercial mortgages market, 24 May 2021
Methodology
Originations begin recovery as vaccination rollout clears the outlook for 2021
Figure 6: Gross value of loan originations, 2017-21, (£bn)
Consumer spending will drive confidence in the retail and office sectors as social distancing rules are relaxed
Figure 7: Aggregated value of outstanding debt on loan books secured on UK commercial property, 2017-21 (£ bn)
MARKET SEGMENTATION
COVID-19 amplified structural issues in retail that will drive both divestment and redevelopment
Figure 8: Number of businesses entering administration and the number of stores and employees affected, 2012-21, (number)
Figure 9: Prime and secondary loan margins on commercial retail property, 2018-20, (basis points)
Flexibility becomes instrumental as COVID-19 puts the traditional office model into question
Figure 10: Prime and secondary loan margins on commercial office property, 2018-20, (basis points)
Shipping and warehousing demand from online shopping continues to anchor the industrial sector’s performance
Figure 11: Prime and secondary loan margins on commercial office property, 2018-20, (basis points)
Proven returns and a trend towards redevelopment and mixed use is spurring interest in the alternative segment
Care homes
MARKET FORECAST
Alternative segment to grow in importance as market moves towards redevelopment and mixed-use
Figure 12: Consumers’ interest in activity participation post-COVID-19, 1 – 12 April 2021, (% of respondents)
Figure 13: Forecasted gross value of loan originations, 2022-26, (£bn)
Outstanding debt
Figure 14: Forecast of aggregated value of outstanding debt on loan books secured on UK commercial property, 2022-26, (£ bn)
Retail
Office
MARKET TRENDS
Affordability issues are pushing long-term investment into ‘build-to-rent’ prospect
Figure 15: UK new permanent dwellings completed annually by tenure, 1989/90 – 2018/19, (number of dwellings completed)
Reformed permitted development rights to enable redevelopment for residential purposes
MARKET DRIVERS
Non-bank lenders are primed to fill funding gaps but loan sizes will be limited
Funding gaps left by cautious lenders open the door for non-lenders to establish themselves
Brexit will raise operating costs but wealth of opportunities post-COVID leaves investors undeterred
Figure 16: Proportion of loans originated to sector, by lender type, 2020, (% of new loans)
COMPANIES AND BRANDS – KEY TAKEAWAYS
Outlet decline continues as digitisation continues in response to falling branch usage
Growth in mid-tier categories suggests a wealth of small and mid-value opportunities in the market
COVID-19 accelerates branch closures as losses encourage efficiency gains through digitisation
INDUSTRY STRUCTURE
Changes in industry structure
Figure 17: Changes in the industry structure of activities related to the commercial mortgages market, 2016-20, (number of businesses and outlets)
Figure 18: Changes in the industry structure of activities related to the commercial mortgages market, 2016-20, (annual % change in number of businesses and outlets)
Changes in employment structure
Figure 19: Changes in the employment structure of activities related to the commercial mortgages market, 2019 and 2020, (number of outlets, % annual change)
Figure 20: Changes in the employment structure of activities related to the commercial mortgages market, 2019 and 2020, (% share of all outlets)
Changes in turnover structure
Figure 21: Changes in the turnover structure of activities related to the commercial mortgages market, 2019 and 2020, (number of businesses, % annual change)
Figure 22: Changes in the turnover structure of activities related to the commercial mortgages market, 2019 and 2020, (% share of all businesses)
COMPANY PROFILES
Aldermore Bank
Recent company activity
Financial activity
Figure 23: Financial analysis of Aldermore Bank Plc, 2015-20, (£m and %)
Barclays
Recent company activity
Financial activity
Figure 24: Financial analysis of Barclays Plc, 2016-20, (£m and %)
HSBC Bank
Recent company activity
Financial activity
Figure 25: Financial analysis of HSBC Bank Plc, 2015-19, (£m and %)
Lloyds Banking Group
Recent company activity
Financial activity
Figure 26: Financial analysis of Lloyds Banking Group Plc , 2016-20, (£m and %)
NatWest Group Plc (formerly RBS Group Plc)
Recent company activity
Financial activity
Figure 27: Financial analysis of NatWest Group Plc, 2016-20, (£m and %)
Santander UK
Recent company activity
Financial activity
Figure 28: Financial analysis of Santander UK Plc, 2016-20, (£m and %)
APPENDIX – DATA SOURCES, ABBREVIATIONS AND SUPPORTING INFORMATION
Abbreviations
Methodology
FURTHER SOURCES AND CONTACTS
Trade associations
Association of Short Term Lenders
CoStar
The Institute of Chartered Accountants in England and Wales
National Association of Commercial Finance Brokers
RICS
Trade magazines
Bridging & Commercial
Business Matters
Commercial Reporter
Loans Insider
Mortgage Finance Gazette
Trade events
Commercial Finance Roadshow 2021
The Finance Professional Show 2021
NACFB Commercial Finance Expo 2021