Reasons To Be Cheerful, Pt 3. Ian Dury wrote and recorded the famously optimistic song off the back of a potentially tragic situation.
The Blockheads took some unexpected time off when touring because one of their roadies had narrowly escaped fatal electrocution while holding a microphone stand, his life saved by the quick reactions of another roadie.
‘Dark kitchens’ can be strategically located in commercial units
This provided inspiration for an eclectic look at 1979’s popular culture; a metronomic and sometimes ironic ode to joy, listing such activities as ‘sitting on the potty’ and ‘being in my nuddy’ as reasons to keep smiling despite the state of the country at the time. The UK was undergoing social and economic change:
Sound familiar?
What followed in the 1980s wasn’t without its problems, unemployment not least, but the decade saw the UK come out of a deep recession; a settling of inflation; falling interest rates; increasing property prices; and increased GDP as the economy adapted and expanded.
Interbay has dropped its commercial loan minimum from £500k to £250k and Shawbrook and Allica offer five-year money around 7%
Jump to today and I could write a song that’s a lot less chipper than Dury’s:
However, analysts suggest this recession is unlikely to be as hard and as deep as feared. We may be close to the peak of the Bank of England base rate and the FTSE reached a record close of over 8,000 points in February.
But where is the commercial lending market right now? Regular readers know I am the eternal optimist, but do we really have reasons to be cheerful?
If you’d asked me, after the mini-Budget, what 2023 commercial lending would look like, I’d have said I expected lenders to run a mile
I read with interest that 89% of SMEs that Allica Bank had polled recently said they would apply for business finance in the next 12 months. Their reasons were not all positive with many trying to keep their head above water, but over 50% of the loans will be for expansion and refinancing.
We need more competition for the bread-and-butter sub-£1m commercial lending. Borrowers and brokers are having to jump through hoops to secure a 9% interest rate with a high-street bank, which simply isn’t good enough. We are seeing genuine intent by specialist banks to serve the commercial sector and take market share from the high-street banks.
Green shoots
If you’d asked me, after the mini-Budget, what 2023 commercial lending would look like, I’d have said I expected lenders to run a mile, but we are seeing green shoots of recovery. Interbay has dropped its commercial loan minimum from £500k to £250k and Shawbrook and Allica offer five-year money around 7%.
Owners and developers are converting buildings into rows of kitchens to accommodate multiple food brands
Two-year money is coming back too, which is helpful because there is pent-up demand to refinance without being locked in for too long. It takes time for consumers to get their head around the new norm; they don’t want to lock in to a high five-year fix but they also can’t afford the even higher reversionary rate. A two-year fixed rate solves a short-term problem for many.
Swap rates appear to have settled and, with residential lending sitting around 4% and buy-to-let mortgages around 5%, it’s reasonable to expect commercial rates to come down to around 6% in the coming months.
While our earlier Amazon example illustrates the nervousness at the higher end of the market, it’s not reflective of the broader market. UK commercial property is adaptable and smaller light industrial units are holding their value.
Over 50% of the loans will be for expansion and refinancing
‘Dark kitchens’, or ‘ghost kitchens’, are a prime example of how buildings can adjust to the needs of a post-pandemic economy. Owners and developers are converting buildings into rows of kitchens to accommodate multiple food brands. These super-kitchens can be strategically located in commercial units outside the more expensive high-street locations, making it cheaper for McDonalds to hand-deliver my breakfast McMuffin.
First-world problems, but if you’re old enough it’s worth remembering how bad the early 1980s were — yet we got through that.
In the words of Ian Dury: “A bit of grin and bear it.”
Peter Williams is chief executive of Propp
This article featured in the March 2023 edition of MS.
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