BANK lending for commercial property deals rose by a record £7.7 billion in the first quarter of this year, according to new data from the Bank of England, triggering fears that the market is becoming overheated.

The figure was the highest rise since the series began in 1997. According to Capital Economics, the figure also beat the £3 billion recorded in 1989 at the top of the last lending cycle, which in today’s money would be equivalent to £5 billion.

More worryingly, the proportion of all new bank lending going to commercial property rose from 9.4 per cent to 9.9 per cent — just shy of the 10.1 per cent peak reached in 1991 during the property recession.

The sharp upward rise in new lending on commercial property lifts the total outstanding debt for commercial property to £122.6 billion.

Property experts said yesterday that they suspected the bulk of the new lending was for investment purchases rather than new developments.

Nevertheless, at a time when fears are growing that some property may fall in value later this year, they said the sharp rise in lending was a cause for concern. They added that some banks were increasing their exposure to development lending, albeit mainly for schemes where tenants had already been lined up. Some banks have also increased the loan-to-value ratios they are prepared to offer on commercial property deals.

William Newsom, head of valuation at Savills, the property consultant said: “I am surprised and potentially concerned that the first quarter spike was as large as it is. If a similar magnitude of lending is repeated in the second quarter, then the Governor of the Bank of England would have good cause to urge greater caution among lenders.”

Peter Damesick, head of research at CB Richard Ellis, a rival consultant, said the figures reflected the strength of the commercial property investment market. He admitted there were concerns about the investment market overheating, but insisted that, while borrowing costs remain low and large swaths of investors remain disillusioned with the stock market and low bond yields, property should enjoy sustained demand.

In the first quarter of 2005, about £12 billion of commercial property transactions were completed, according to Property Data, compared with £42 billion in the whole of last year.

TAX TALKS ON REAL ESTATE TRUSTS

Lobbyists for the commercial property industry yesterday met Treasury officials in an attempt to ensure that Real Estate Investment Trusts are introduced in the UK in 2006. The Treasury fears that overseas investors may escape paying tax on the trusts because of a series of treaties between the UK and other countries under which such investors are charged little or no tax on dividend income.

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