Ortus and office lending

Changes in regulation, working patterns and the economy have made the office sector significantly more challenging. This means that borrowers are increasingly looking to alternative finance providers for their lending solutions.

Challenges facing the office-space market

In the last few years, we have seen a paradigm shift in the office market.

Rather than there being one specific reason for this, our experience suggests a range of different factors including:

• The pandemic, which became a catalyst in dramatically increasing the number of people working from home, and the figure still hasn’t returned to pre-pandemic levels
• High inflation and rising interest rates, increasing the cost of borrowing and leaving businesses and developers facing financial challenges
• Government energy performance regulations making older office stock an unattractive proposition due to the outlay required to bring them in line with EPC guidelines.

Repurposing can help drive demand for office space

The changing business environment has reduced demand for office floorspace and has also presented challenges for the office rental market.

For example, prime central London stock in the West End and the City is still commanding strong yields, especially if the stock is rated as being grade A. In contrast, however, even grade-A offices outside of these areas can suffer from a lack of demand.

But if financial constraints mean that the rental yield can’t facilitate a refurbishment of the office, then there are options to repurpose for other usages.

Property Investor Today reports that the most common changes of use of office space include flexible working space, hospitality, retail, and residential.

We are seeing 3 common office-lending scenarios

We take a flexible and innovative approach to office lending, particularly in the light of market challenges, and we endeavour to be as supportive as possible.

We are typically seeing three specific scenarios when it comes to office transactions:

1. A developer requires an exit loan against newly-built office stock. In these circumstances, we can build in an interest reserve and provide a two- to three-year stabilisation window while the building goes through a letting process.
2. The existing income profile doesn’t support the purchase or refinance of an office. This could be a start-up owner occupier who is still ramping up trade, or a multi-let office with a low WAULT that requires some asset management and regearing until they can access a bank mortgage.
3. We are asked to lend against an office which is to be repurposed for another use. Providing there is a clear plan and appropriate risk management, we can support borrowers through a rigorous planning process.

Get in touch 

If you’d like to find out more about our office lending proposition or have a specific case you would like to discuss, give us a call.