Insurers to boost lending by £28bn

Insurance companies will increase their lending to UK commercial real estate by £28.1bn in the next five years, according to new research by law firm DLA Piper.

The increase will take total lending by insurers to £52bn by 2017 and annual lending is expected to rise to around £5.5bn by the end of the period.

DLA Piper's report, Searching for investment: insurers as lenders, conducted in conjunction with the Centre for Economic and Business Research and based on 20 in-depth interviews, also found that insurers were likely to offer higher loan-to-values than the current market norms of 50-65%.

Typical loans would be for medium terms of between seven and 10 years and would primarily take the form of loans on a bilateral basis, often including gilt-based interest rates and whole pre-payments, the report said.

Annuity funds are the most likely source of insurance lending, with core assets sought likely to include retail and office space with a preference for prime assets in London and the South East priced in excess of £50m.

Simon Cookson, DLA Piper partner and UK head of real estates, said: "While the number of insurance companies active in this space is currently fairly small, the expected returns from CRE lending have an attractive profile and we will see more insurance groups move into the market. We expect insurance groups to establish their position as lenders, and once they have put in place the requisite in-house infrastructure and expertise, insurers' provision of CRE lending should continue to expand into the market recovery."

Toby Barker, DLA Piper head of real estate finance in London, added: "There has clearly been an increased level of activity by insurance company lenders in the real estate debt market over the past 12 months.

"You only have to look at the number of headline deals involving insurers to see that. This throws up a number of questions about the drivers behind it and what the impact will be on the market."