Commercial property company insolvencies jump as banks call in loans

Kasmira Jefford
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The number of property company that became insolvent, including so-called zombie companies, rose by eight per cent last year (Source: Getty)

The number of insolvent property investment companies has surged over the last year as banks took advantage rising commercial property values to claw back loans they have held onto since the crisis.

The number of insolvencies, where a company can no longer pay its debts, rose by eight per cent to 346 in 2015 from 319 the previous year, according to research by commercial law firm EMW.

Over the last five years, that number has more than doubled from 154 in 2011 and in some cases this has also meant “zombie” property investment companies going through an insolvency process.

Property values have soared over the past year thanks to higher occupancy levels and rental rises on the back of the improving economy, prompting banks to try and recoup some value from their loans by forcing distressed property firm to sell their assets.

“Ironically, the rise in insolvencies is down to the improved property prices, rather than an indication the market is in trouble,” Geoff Willis, principal at EMW, said.

“Banks have been holding onto these sour loans since the credit crunch struck and are using this opportunity to recoup some of the value tied up in this bad debt,” he added.

Office rent in London’s West End have risen by 21.6 per cent in the last year to £81.30 per square feet, up from £66.88 per sq ft in October 2014 thanks to companies taking up more space, according to estate agents Savills.

Meanwhile increased investment from international and UK buyers has also driven up property investment values, with central London office investment exceeding £18.5bn in 2015, according to JLL.

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