Evolving dynamics of the 2021 development market

There has been a marked increase in the number of developers considering funding options much earlier on. Whilst we still see cases with tight timeframes, the frequency of deals needing to complete at the ‘11th hour’ seem to have dropped significantly compared to pre-pandemic levels. This shift could be driven by a few reasons, the most likely being that there is greater caution to transact when the future still seems uncertain

The impact of starting those funding conversations earlier on is two-fold. It gives time for the broker, developer and funder to gather all of the necessary information and therefore greater preparedness to push the button at the point of completion but, the longer that is left between initial enquiry to actually moving ahead, the more likely it is that deals will drop out.

Part of the challenge on the lender side is that developers are presented with more funding options than ever before; the combination of more time and more choice might not create the best result for some. Whilst the pandemic saw the demise of some players in the market, the situation has re-calibrated itself and we are seeing the return of more competitive lending. There are signs of funding options being cheaper than before which is driving a race to the bottom. Furthermore, CBILS - which has only recently come to an end - was taking business away from lenders and has been replaced by a similar Recovery Loan Scheme.

From a lender perspective, competing on price is neither an effective nor sustainable strategy. With developers looking to get their ducks in a row earlier on, what they need instead of cheap capital is flexibility, certainty of funding and value add propositions. Changing the perspective in this way means that lenders need to understand and respond to what developers need rather than what they think they have historically wanted. There will therefore be greater onus on lenders to remain responsive to the market and introduced relevant products and features; this is something which Avamore is proud to have done through its part-built product and more recent planning flexibility feature.

With the emergence of this change, it will be a collective effort to deliver the right products to the right project and so, the role of the broker will be more important than ever. Identifying solution which really work is going to be paramount as well maintaining a consistent dialogue between initial enquiry and the transaction moving forwards. Developers and lenders will need to lean heavily on brokers who are well informed on the 2021 landscape so that they can communicate relevant messages on both sides of the deal chain.

As with most things this year, it’s about finding ways to move forwards together rather seeing changes as roadblocks. The deal timeline might have readjusted which comes with challenges but there is certainly renewed opportunities for lenders and brokers to bring fresh and relevant solutions to the development market. Increased optionality should drive creativity and innovation amongst lenders which can bring a positive impact to the 2021 market.