When one door closes, a window of opportunity opens

In 2021, we saw a huge number of property buyers rushing to take advantage of the government’s temporary cut to stamp duty. Property purchases peaked around this time and in line, house prices rose considerably. More recently we’re levelling out to pre-pandemic levels with the cost of new homes listed for sale falling by 1.3% at the higher end of the market, according to Bloomberg. Regardless, there is still a stable market below this covering first time buyers and second or third steppers. Demand at the more affordable end of the space remains high with supply trailing behind; Rightmove recently reported that nine in ten current house hunters have had their search affected by a lack of available properties.

Naturally, the most desirable schemes are taken off the market quickly but, where availability exists, costs for sites with strong potential are being inflated. These two factors combined with rising material costs mean that for developers it is now more difficult to source sites which will ultimately be profitable. This trend has therefore encouraged a shift into other areas where value and return can be maximised.

In August 2021, the government relaxed rules surrounding commercial property. Unused commercial buildings can now become homes through a simpler ‘prior approval’ process. This change has unlocked a whole host of new possibilities for developers who may have been left scratching their heads.

Some city centre office space has bounced back, particularly in central London where rents are anticipated to outpace most other UK regions, as well as the South East which is the only region where demand for office space is predicted to see growth (RICS, 2022). Conversely across the rest of the UK, there remains a much higher proportion of unoccupied commercial buildings which are now attracting a considerable number of investor enquiries highlighting the renewed opportunities in this space.

Whilst this is encouraging, the increase in demand for commercial sites which have the potential to become residential means there is a need to move fast in order to snap up the best schemes. Moving quickly however isn’t always possible particularly when it comes to transacting in the UK property market. What’s more, developers that secure sites and then hold onto dormant buildings whilst they wait for planning to go through, will find that costs add up before the project has even really begun.

In a period of flux and high prices, it’s important that site opportunity and profitability are maximised; from our perspective, it falls to lenders to enable this shift. With the commercial market attracting more attention, developers need to be able to rely on a lender that can support them properly in these transactions. The ability to lend on a commercial site without formal residential conversion planning in place, is an area where Avamore can help and just one example of the market adapting. What’s more, as prices soar, Avamore is finding ways to save the borrower money, reducing the arrangement fee of an onward development loan by the amount already paid on the initial bridge. In a challenging climate, it’s up to lenders to evolve how they support borrowers. In short, they must start recognising which doors are closing and where the window of opportunity is opening next.