The lack of lending from banks has seen a real shift in the financial sector, with new alternative sources of finance providing fresh hope for the construction industry.
For a while now there have been reports of new start-up businesses increasingly turning to peer-to-peer lending websites for finance. One such website, Funding Circle has provided borrowers with more than £125m since its launch in 2010. It’s success has been driven, not just by businesses seeking finance, but from a growing number of casual investors in search of higher yields and an attraction to what is seen as a more rock ‘n’ roll form of investment.
However, it isn’t just businesses that are struggling to find capital. One of the biggest threats currently facing developers in the construction industry is a lack of finance. This has been a persistent issue since the 2008 property crash and is something that looks set to continue – with Morgan Stanley predicting a funding shortfall of £350-600 billion for the commercial property sector alone.
But, in reflection of the business sector, creative new solutions have now started to appear for the property industry – which meet both investors and developers needs. Recently launched is the Estates Investment Exchange, a website that sources investment capital for new development projects. Founder, and former Reuters technology executive, Mark Worrall states:
“This is an opportunity for the property industry to take control of its own destiny. The global wealth business is huge and highly mobile and is looking for places to invest. The property industry needs to offer these new types of investors scale and choice.”
For those developers with access finance there are currently a number of development opportunities available. Prologis estimate that over the last five years every €1 billion of online sales (in Germany, France and the UK) has generated demand for 72,000 sq.m of new warehouse space. And it’s not just behavioral changes that are creating opportunities, an ageing demographic means Europe requires on average one new nursing home to be built per month.
Inflation is also expected to be key in driving private investors towards real estate. Knight Frank observe in their 2013 Wealth Report that:
“In 2013 those cities already in recovery will see a move towards higher-yielding development opportunities. Development or refurbishment offers the property investor something that no government bond can – an opportunity to increase their income stream by achieving a higher rent on the open market and creating upside in capital value. This also brings out property’s great advantage over equities: the ability to directly manage the asset, even rebuilding it or changing its use.”
With renewed interest from private investors, and with websites such as the Estates Investment Exchange providing greater access to investors’ capital, developers are now presented with new solutions, which will lessen their dependence upon bank lending and grow liquidity.