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UK property industry faces financing 'black hole'

The Scottish Property Federation (SPF) has today warned, at its autumn conference, that the UK property industry faces a financing ‘black hole’.

£160bn worth of property debt matures over the same five year period as the £81bn of government cuts announced by the coalition government in the Comprehensive Spending Review.

The level of maturing debt, almost twice the level of George Osborne’s public expenditure cutbacks, will hit the commercial property industry’s ability to fund itself and support the UK economy, delegates at the conference were today told.

Phil Miller, chief executive of Miller Developments, said:

“Very conservative estimates suggest that debt available to UK commercial property will contract by around £60bn over the next five years. When one considers that the Comprehensive Spending Review proposes cuts over a similar period of £81bn from the entire economy, this removal of credit is clearly a massive issue for both the industry and the economy as a whole.”

Liz Peace, chief executive of the British Property Federation, said:

“Few industries have been hit as hard as the property industry by the onset of the credit crunch and the banks are now reducing their exposure to real estate.

“There is a rapidly approaching funding gap as £160bn of debt is due for repayment in the next five years with little thought on how to refinance this backlog or how the property industry will fund itself in the coming years.”

The SPF is also warning that the financing ‘black hole’ will only increase the polarisation between London and the South East and the rest of the UK.

David Melhuish, director of the SPF, said:

“Whilst prime commercial property in London and the South East looks fairly robust, the story for the rest of the UK is far less rosy.

“The property debt will make finance difficult to come by and in this context the public capital expenditure cutbacks raise a genuine concern over future levels of public investment in the Scottish economy.”

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For further information or to organise an interview please contact:

David Melhuish, Director, Scottish Property Federation, on 07841 080989

Patrick Clift, Media and Public Affairs Manager, the British Property Federation, on 07834 439 505, or pclift@bpf.org.uk

Paul Sweeney, Media Assistant, British Property Federation, psweeney@bpf.org.uk  – 020 7802 0113

Notes to editors

• The Scottish Property Federation is a representative body for the Scottish commercial property industry and speaks for over 115 corporate members.  Included within our membership are commercial property developers, landlords and managers, fund managers, property owners and long term investors in both commercial and residential property.  We are an integral part of the UK-wide British Property Federation which represents most of the UK and Scotland’s largest property investors, developers and professional property industry advisers and property consultants.

• According to research published at the end of 2007 the commercial property industry in Scotland was worth some 8.5% of gross value added to the Scottish economy, representing some £7.34bn in 2005.^[1]  Commercial property values are estimated to have fallen by around 40% since their peak in mid-2007^.

[1] GVA Grimley: the role and contribution of commercial property in the Scottish economy, commissioned by the Scottish Property Federation (2007)