Commercial lending in Australia has shown unexpected resilience over the past year, with non-bank lenders attracting a steady stream of high-quality customers who are unable to secure assistance from traditional lenders. The key question is whether this resilience can persist in an evolving economic landscape.
“[The market has shown] more resilience than what the initial outlook and narrative suggested around commercial lending in particular,” said Cory Bannister, senior vice president and chief lending officer at La Trobe Financial. “The industrial sector, for instance, has continued to record strong growth and demand.”
Bannister highlighted the positive impact of increased immigration on generating demand for various commercial assets.
“With strong overseas migration forecast over the short term, the headlines have rightly been focused on housing supply; however, new residents will also need places to work and places to shop,” he said.
Bill Constantinidis, CEO of financial services firm The LA Group, concurred that the pessimistic predictions have been proven wrong thus far.
“In the retail space, everyone was scared. And all of a sudden, it’s fine. In the office space in the city, everyone was scared but all of a sudden, fine,” Constantinidis said. “I don’t see any doom and gloom on the horizon – everyone’s just adjusting to the new world, new tenancy profiles.”
Undoubtedly, the revised expectations are notably less optimistic compared to the period of exceptionally low interest rates and high liquidity, which the Reserve Bank of Australia has already ended.
Consequently, the commercial lending market has evolved into a more sophisticated arena compared to 2022, leading top brokers to dedicate additional efforts to redefine the narrative for their clients. The prolonged availability of credit may have given some clients a misguided confidence in their ability to swiftly access funds.
“When the customer seeking a $2 million-plus solution shows up on your doorstep needing a non-bank solution, [managing] the expectations around turnaround time is our biggest challenge,” said Constantinidis, adding that it’s also tough to find enough lender options for this increasing demand segment.
David Cowen, managing director of the private credit fund Mosaic Private, has also encountered the need to recalibrate the expectations of some borrowers concerning the types of deals currently possible.
“[We spend time asking] what’s actually going to work, and what are the new tenancy profiles that actually stack up? And who are the right funders to support you to do it?” Cowen said.
He said that the speculation that characterised the property market last year has been reined in, which he considered a positive development, allowing for higher-quality deals to come to the forefront more effortlessly as there is now less noise or distraction.
“With that, there’s a great opportunity for us to partner with the right lenders, be very forward-leaning and find that opportunity to back the right people,” Cowen said.
Read the premium story, "Commercial lending for all seasons", to know more about the commercial lending market in Australia.
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