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Banks part owned by UK govt running scared of lending to commercial property sector

Various experts believe that banks which are now partially owned by the government will probably favor industries that win electoral votes.

Banks that sold stakes to the government are running scared of commercial property lending according to Mark Jenkins, head of commercial lending at Nationwide Building Society, the UK's biggest lender.

'Banks are going to be de-leveraging out of commercial property quite aggressively. It will be low down on their list, for political reasons,' he explained.

The banks just don't want to be associated with investment in an area where prices are plunging. The average prices of UK shops, offices and warehouses have fallen 36% since their 2007 peak, according to CB Richard Ellis.

'You can almost feel the stress in your banker's voice as you talk to him,' said Mike Slade, chief executive officer of property developer Helical Bar.

Cash rich investors may take up the slack as commercial property firms lose banks' support. 'Most of our transactions over the next three years will be done in partnership with institutions. They are far more stable, far more long-looking and far more loyal to a transaction than a bank would ever be,' added Slade.

To overcome the lack of bank funding, companies have started asking their investors for cash or agreed to sell assets at bargain prices.

Workspace announced an £87 million rights offer this week, and Helical Bar raised £27.7 million by selling more shares to investors. Land Securities, the largest listed property company, raised £440 million pounds last month by selling its real-estate management arm for 25% less than its book value.

There were £207 billion of bank loans against UK shops, offices and warehouses at the end of June last year, according to research from De Montfort University in Leicester. There are a further £73 billion of commercial mortgage-backed securities on UK real estate, according to Barclays.