Special Report – Optimism and Opportunity in the Commercial Mortgage Market – Mortgage Strategy

Mortgage brokers have reason to be cheerful when looking at commercial loans.

After several challenging years, fundamentals look more positive: interest rates are on a downward trajectory, swap rates are lowering, rental yields are still high, and lenders’ appetites are increasing between key sectors.

“We’re already increasing in this market,” said Lucy Waters, managing director of Aria Finance. “We’ve seen a significant increase in queries, and our pipeline is stronger than it was a few months ago.”

Emotion is not generally bullish in all asset courses

Jorden Abbs, CEO of Commercial Trust, agreed. He has seen this year’s purchase and cashing inquiries for pure and semi-commercial businesses.

“The high yield and long-term lease agreements offered are a compelling claim,” he said.

Economic uncertainty

However, there are still some areas of concern. Ongoing economic uncertainty has put the activity of developers and investors on brakes.

“Investor sentiment is heading towards a trend of grumpy optimism, although this sentiment has not significantly affected transactions, with volumes below average,” said Dan O’Neil, executive director of SPF’s private client business finance.

Adrian Wickham, chief commercial officer of the envelope, shared this gentler vision.

UK student housing market remains a compelling investment opportunity

“Commercial property investors certainly have reason to feel more optimistic, although this view is not a general bullishness in all asset classes,” he said.

So, what contributes to the prospect of this mix?

Kevin Thomson, director of Connect for Indermediaries, said signs of recovery began in 2024 and the momentum has continued. This is reflected in the latest UK commercial monitors from Royal Chartered Surveyors Royal Institution, where more than half of respondents believe the market has reached its lowest point or is rising.

“The growth in capital value, as well as the rise in rental value, drives investors’ income growth. Real estate yields in the UK have remained stable, which gives confidence that lenders are entering or returning to the commercial market, which is clearly a sign of growth. This could lead to easier standards, including higher LTVs.”

Mat Oakley, head of business research at Savills, said lenders’ appetite from mainstream and professional lenders is as strong as he has seen in recent years, and overseas lenders are also looking to gain access to the UK market.

I believe the greatest opportunity is brokers and lenders who combine technology with traditional, flexible underwriting

However, they have to compete with developers and investors lack of activity.

“The lender can’t find enough quality funding opportunities,” Oakley said.

He added that this will cause competition from LTV around LTV, but valuations are still high and some lenders are walking away instead of hurting margins.

Auckley said rising construction costs, higher land prices and political and economic uncertainty are causing investors’ inertia in the UK and overseas. He cited the growth of British employer National Insurance, U.S. President Donald Trump’s position on developing trade tariffs and the UK government’s position on rent-only review, which is a trade-off on emotionality.

Justin Trowse, managing director of Mortimer Street Capital Capital, agreed, adding that there is also regulatory pressure.

“The cost of upgrading inventory to meet EPC and ESG standards remains a real consideration,” he said.

We see many customers with traditional convenience stores, who live above stocks for a year and make very strong profits

“Another hurdle is pricing alignment. Sellers’ expectations often exceed what buyers are preparing to pay for, although it is encouraging that the average asking price discount over the past year has narrowed. This suggests that the gap is starting to narrow.”

Trowse believes that while growth remains in the broader economy in the UK, opportunities in the commercial property market are often industry-specific.

“For disciplined investors with capital gains and through the ability to be stable and stable, the current environment can bring attractive returns, especially in industries with structural demand.”

Departmental Analysis

So, what parts of the commercial market offer the best opportunities right now? Many agents like the student market.

“Special student accommodation [PBSA] Still sought after, especially near top universities, many transactions are secured through preparatory and forward funding. ” Trowse said.

The growing demand for moving to online business models and quality living spaces outside densely populated cities has opened up opportunities in regional hubs

O’Neal agreed.

“Student housing remains a compelling investment opportunity,” he said. “Strong potential demand, institutional momentum and continued high occupancy rates make it good for developers and investors.

“PBSA outperforms core real estate sectors such as retail, office and residential, from pension funds to sovereign wealth funds, and major developers like Unite Group, Peripiric and Greystar.” Institutional capital remains strong. ”

But there are potential challenges even here, with the broker citing the Building Safety Act requirements (Gateway 2), planning delays and rising construction costs.

“We hope that the expected base rate cuts could reduce financing costs in the second half of 2025,” O’Neil said.

Student housing is not the only area of ​​growth. In recent years, the logistics and warehousing markets and healthcare-related assets have surged, as well as assets from laboratories to specialized healthcare and nursing facilities.

The cost of upgrading inventory to meet EPC and ESG standards remains a real consideration

Oakley said the “stele growth” of logistics may have cooled down recently, but the industry is still providing sustainable growth levels.

“The fundamentals of logistics, warehousing and healthcare-related assets remain strong and are driven by resilient demand driven by e-commerce, demographic shifts, and an increasing long-term trend for community-based healthcare facilities,” Wickham added.

Other outdated departments are also showing signs of recovery. Oakley said the relocation of desktop-based employees back into the office (for at least part of the week).

“In the best locations, you may get a 6.75% to 7.5% yield in a quality office space. This is not only in the south, but also in other major regional cities.”

The lack of new developments means existing investors can be confident in sustainable rental yields.

Oakley added: “In the near future, no one will develop quality office spaces at their doorstep, especially outside London, where it is still difficult to procure development financing.”

MFB senior commercial mortgage consultant Robin Tait agrees that the office is making a comeback, but he says he sees more opportunities in smaller units, which is more affordable for tenants.

It is encouraging that the average discount on asking prices has narrowed over the past year. This indicates that the gap is beginning to narrow

Retail is still mixed. The continued rise of internet shopping has won high street profitability, but Oakley says the opportunity for residents’ external retail parks is not very suitable for goods that are not suitable for online sales such as beds and carpets, as well as quality shopping centers that combine high-end retail with leisure.

Although the type of commercial property is key, location is another important factor.

“Regional cities such as Manchester, Leeds, Glasgow and Edinburgh will flourish with London to redevelop quality assets to compete with new buildings for rental yields,” Thomson said.

Trowse added: “The main locations in London will always be of interest, but demand is spilling into the region.

“The growing demand for moving to online business models and high-quality living spaces outside densely populated cities has opened up opportunities in regional hubs.”

Brokerage Opportunities

For brokers looking to diversify this market, semi-commercial properties may be a good stepping stone.

“It’s an attractive way to attract one foot into a commercial property while placing the other foot in the familiar realm of residential rental.”

High yield and long-term lease agreements offered are a compelling claim

ABBS notes that commercial properties are more complex, but, as investors recognize opportunities, many may seek brokers to fund expertise.

“We’re seeing a lot of customers who have traditional convenience stores have very strong profits year by year,” Abbs said.

“Some landlords told us that their long-term plan is to move to a full commercial portfolio. But investors are exploring options.”

Thomson said brokers have a chance, but warned that commercial loans take longer to complete and have a higher rate of consequences.

“As a broker, either hire a business expert as a packer or join a network of experts that can support you on your educational journey with commercial mortgages,” he advises.

The commercial market may see significant changes in the commercial market given the higher appetite of lenders, targeted investor interests, and fundamentals in key sectors. For brokers ready to deal with their complexity, it can provide both direct opportunities and a strong medium-term growth prospect.

More and more feelings are that we are turning in this market

Waters added: “Looking forward, I believe the biggest opportunity is brokers and lenders who combine technology with tradition, flexible underwriting.

“Artificial intelligence is already improving efficiency, but it must not completely replace human judgment. When you will balance data-driven decisions with experience and creativity to achieve transactions, the best outcome is.

“If this balance is reached, 2026 may be the most promising year the industry has seen in some time.”

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