This article was co-authored with Beckford Advisory.
The UK commercial real estate debt market has moved out of its post-2022 downturn, with a record £52.7 billion of new lending written in 2025. Non-bank lenders continue to displace clearing banks, now holding around 45% of outstanding commercial real estate debt as insurers and private wealth increasingly treat real estate debt as a distinct asset class. Intensifying competition has compressed margins, while refinancing dominates activity ahead of a £33 billion loan maturity wall due in 2026. Appetite remains sector-specific, favouring logistics, living sectors (build-to-rent and PBSA) and operational assets (healthcare and hotels). Notwithstanding a change of Prime Minister, the ongoing Gulf conflict and further political and geopolitical uncertainty, continued growth in private credit is expected through 2026, with underwriting discipline and documentation quality becoming key differentiators.
Market Overview
It might not feel like it at times, but the UK commercial real estate (CRE) debt market has moved decisively out of the post-2022 downturn. Bayes Business School's latest lending survey records £52.7 billion of new CRE loans written in 2025, a 29% increase year-on-year and the highest annual total in a decade. The outstanding UK CRE loan book stands at roughly £201 billion, with a further £34 billion of social housing debt held by specialist lenders. Sentiment has clearly improved since the depths of 2023–24, supported by falling base rates, narrowing bid-ask spreads and a gradual return of transactional activity.
The Structural Shift from Banks to Private Credit
The defining trend of the past decade continues: the steady displacement of clearing banks by non-bank, private capital. UK banks' share of the CRE lending market fell from 40% to 36% over the past year, extending a decline that began with the arrival of debt funds around a decade ago. Debt funds themselves grew their market share from 12% to 28% in a single year, and alternative lenders collectively (debt funds and insurers) now account for around 45% of outstanding CRE loans, a threshold that looks set to pass 50% within the next few years. This is not simply cyclical risk aversion by banks. It reflects a reallocation of capital, with insurers, pension funds and private wealth increasingly comfortable holding real estate debt as a distinct, income-generating asset class in its own right.
Pricing, Competition and Deployment Pressure
Competition to deploy capital has intensified markedly, and pricing has moved accordingly. On the front line, we’ve seen countless new lenders joining the established and dominant household names, with appetites ranging from niche, sector specific mandates, to those seeking to establish broad, market-wide loan books. Senior loan margins on prime assets have narrowed meaningfully over the past twelve months, with both UK banks and debt funds cutting margins on comparable transactions. Development finance pricing has also softened, with residential development margins falling to levels not seen in some years. Lenders unable to compete purely on price are increasingly differentiating on loan-to-value flexibility, fee structures and speed/certainty of execution, a dynamic that favours private credit providers, who are typically less constrained by formal committee processes and legacy loan books than traditional banks.
Refinancing Dominates Activity
Roughly 60% of 2025's new lending related to refinancing rather than new acquisitions, and around 19% of outstanding UK CRE loans (approximately £33 billion) are due to mature and require refinancing in 2026. This refinancing wall is a central feature of the current market, particularly where maturing loans were originated at materially different valuations or interest rates. Secondary loan market syndication has also picked up, reaching £14.7 billion in 2025, which is generally read as a sign of improving market liquidity and confidence.
Sector and Product Focus
Lender appetite remains highly sector-specific. Key themes include:
- Development finance market continues to grow, now representing 16% of new lending and 19% of outstanding CRE debt, with strongest appetite for well-located logistics, residential ("beds and sheds") and purpose-built student accommodation, albeit certain parts and locations of the PBSA sectors are currently facing headwinds caused by oversupply and a shift in international student’s university preferences. It must also be noted that development activity across all sectors has been slower over the past 2-3 years due to various legislative and macroeconomic issues. As a result, more lenders are chasing fewer, viable development projects.
- Prime assets continue to attract broad lender interest, while secondary and older stock (particularly offices lacking ESG credentials) face a materially narrower pool of willing lenders.
- Living sectors (build-to-rent, PBSA) and operational real estate such as hotels, healthcare, and data centres, are attracting new sources of capital and lender interest.
- Loan sizes above £20 million and assets meeting climate-resilience or carbon-reduction criteria are increasingly preferred by development lenders.
Risk, Default and Regulatory Themes
Credit quality remains a live concern despite the improved headline picture. Defaulted loans fell to 3.8% by the end of 2025 (down from 6.3% mid-year) but remain above the long-term average of around 3%. Notably, an estimated 15–20% of CRE loans lack covenants allowing lenders to intervene ahead of a payment default, and interest cover ratio stress has increased materially since 2016. Confidence was further tested in early 2026 by the collapses of bridging lenders Market Financial Solutions and Century Capital, alongside wider volatility linked to geopolitical shocks and stress in adjacent credit markets (subprime auto and invoice finance failures). Regulators, including the Bank of England, are paying closer attention to non-bank lending and asset-based finance as the sector's footprint grows.
Domestic Political Backdrop
The Labour government elected in July 2024 has introduced a substantial reform agenda affecting real estate, most of it aimed at boosting housing delivery and tightening compliance rather than at credit markets directly. The Planning & Infrastructure Bill, reforms to the National Planning Policy Framework and a return to strategic spatial planning are intended to unlock sites and speed up approvals. The Renters' Rights Act (phased in from May 2026) abolishes Section 21 evictions and reshapes residential tenancy risk. A new Building Safety Levy takes effect from October 2026, and business rates and property income tax changes (including a further rise in tax on rental income from April 2027) are adding to landlords' cost base and prompting a shift toward corporate ownership structures. Separately, proposals to ban upwards-only rent reviews in commercial leases have unsettled parts of the investor community. Compounding this, the Labour government itself is in flux. Our new Prime Minister, Andy Burnham has signalled a more devolution-focused, higher-spending policy direction than his predecessor. For lenders and investors this leadership change adds a further layer of near-term policy uncertainty to an already dense reform programme, with structuring, timing and covenant flexibility all likely to need closer attention as a result.
Geopolitical Backdrop: The Gulf Conflict
The conflict between the US/Israel and Iran, which began in late February 2026 has been a significant macro factor for UK CRE and credit markets this year. Higher oil prices and inflation expectations pushed gilt yields and SONIA rates higher in the spring, complicating the Bank of England's rate-cutting path (the Bank held its base rate at 3.75% at its June 2026 meeting) and adding roughly 30bps to two- and five-year SONIA rates around the conflict's onset, which fed directly into loan pricing referenced in the Bayes lending data above. The effect on real estate demand has been mixed rather than uniformly negative. Domestic residential and mortgage-driven activity has softened, with buyer demand and consumer confidence both dented. At the same time, prime central London and other institutional-grade UK real estate have continued to attract Gulf and other international capital seeking a stable, transparent safe-haven amid regional turmoil. Market intelligence suggests Gulf sovereign wealth and private investor appetite for UK real estate has, so far, held up. For private credit specifically, the episode has reinforced lenders' focus on interest rate hedging, refinancing risk, and documentation robustness, themes already prominent in the market before the conflict began.
Market Outlook
The consensus among lenders, brokers, and commentators is for continued, if more complex, growth in UK real estate private credit through 2026: growing institutional and private-wealth allocations and ongoing bank deployment targets should sustain deal flow. However, the political and geopolitical backdrop set out above means that progress is unlikely to be smooth. Further Bank of England rate cuts will likely be pushed later or made more gradual if inflation pressure persists, and a new Prime Minister brings a period of watch-and-wait on tax and planning policy just as the market is regaining confidence. With margins compressing and competition for prime assets intense, differentiation will increasingly be achieved through underwriting discipline, documentation quality, and downside risk protection. Practically, this points to:
- sustained volume in refinancing and restructuring activity as the maturity wall is brought down;
- growing need for facility documents to include carefully drafted intervention and covenant provisions in response to regulatory and default concerns;
- increasing complexity in cross-border and fund-level structuring as US, European and Gulf-based capital expands its UK presence;
- continued focus on interest rate hedging and rate-reset mechanics given ongoing geopolitical volatility;
- further growth in private credit and flexible, asset-backed finance products as lenders push into higher-growth, higher-complexity niches; and
- transactions taking longer to come to fruition as all parties assess the political, legal and economic landscape.
