The global economic downturn has made it far harder for property developers to obtain necessary finance, and recently the head of one of the UK’s largest property companies has warned that easier lending conditions are not likely to come back “for the foreseeable future.”
British Land chief executive Chris Grigg told The Times newspaper that the ongoing financial crisis has a number of long-term knock on effects, chief among which is that the banks remain very wary of financing property developers’ schemes compared to other kinds of lending on real estate deals.
Speaking recently at the British Council for Offices’ annual conference, he had predicted that smaller property developers will need to enter into partnerships with sovereign wealth funds and private equity companies in order to continue with their projects.
Mr Grigg expanded on this subject in his interview with The Times, saying: “Will banks finance development? Yes, but at much, much lower levels of leverage.”
“Development, even in London, will be more modest than it has been for a long period, and the little that gets done will tend to be by well-capped, larger companies.”
He went on to say that regulations concerning capital adequacy had often acted a brake on development during the boom period of the previous decade. These regulations direct banks to maintain enough cash reserves to cover the riskier areas of lending.
British Land’s figures show that even when the property market was at its peak in 2007, the development of London office space only reached around six million square feet, whereas during the 1990-91 boom they reached 14 million square feet. Mr Grigg pointed out that since 2007, capital adequacy rules have been tightened still further.