Pictured above: Lambert Smith Hampton's Ian Kibble 

The recovery in the commercial property market in the Midlands is being threatened by a shortage of bank lending, a leading Birmingham property expert has warned.

Ian Kibble, Regional Director of the Birmingham office of national commercial property consultancy Lambert Smith Hampton, said banks were actively reducing their exposure to real estate, and that risked threatening the fragile recovery seen in property transactions and activity seen in recent months.

But he said the good news was that new funders entering the market were stepping into the breach, and with the right advice, funders could still be found despite the reluctance of the banks

LSH's quarterly analysis of the market showed that there was a 17.6 per cent increase in activity at the end of 2010, with office and industrial property performing particularly well. Retail performed less well with a 34 per cent drop. Activity in the East Midlands showed an even bigger recovery with a 48 per cent increase in activity.

But Ian Kibble said lending by banks to the property sector had weakened substantially and property owners and cash-strapped investors were now seeking other funding options.

"Credit availability is going to be a key factor in sustaining the upturn during 2011. Banks have retreated from the commercial real estate sector for the first time in more than a decade as traditional lenders attempt to rein in their exposure to property loans. The level of outstanding debt to commercial property has dropped for the first time. The annual rate of growth in lending to commercial real estate was 20 per cent in 2008. Last year it has reversed to a three per cent decrease. This drop in bank lending applies to both UK and overseas banks, although German banks seem to dominate the lending that is actually happening" he said. 

He added, "If the recovery is to be sustained, the money has to come from somewhere.  In a climate of high inflation and limited returns many are recognising the sustainable income benefits of commercial property and many pension funds are expected to increase their real estate allocations.

"Additionally some other sources of capital have appeared on the market and might partially fill the void left by the banks. Several investment managers, including AXA, Schroders and Eurohypo, have developed strategies to take advantage of the shortage of bank lending and have launched non-listed funds to provide loans. This sort of a solution will fill go a long way to fill the void left by the banks. We would encourage people to speak to us about their funding requirements and we will find the best route available."

The Birmingham office of LSH - based in Edmund Street - offers the full range of property consultancy services across the whole of central England. The office delivers transactional and consultancy property services to both the private and public sector in industries ranging from banking, finance and telecoms to retail and transport. 

For more information about Lambert Smith Hampton, please visit their website here: www.lsh.co.uk