Brokers report steady product availability, tighter risk appetite and rising demand for semi‑commercial and land deals
The commercial property market remains in transition, with brokers reporting a cautious but active lending landscape as pricing eases and investor demand starts to return.
Sam Rose (pictured top left), director at mortgage advisory firm TR Financial, said that while borrowing costs have improved, lender confidence has yet to fully recover. “The commercial market is still going through a state of flux over the last 18 months,” he said.
“Rates have been coming down which has been drawing clients back to the market a bit more, but I do not think full confidence has come back, from a lending point of view. Lenders are still quite cautious when it comes to lending, and I think prime lending opportunities are still at the forefront of lenders priorities.”
By contrast, in terms of product availability, Billy McCluskey (pictured top right), head of sales at specialist mortgage broker Commercial Trust, described conditions as stable. “The market in terms of product is steady,” he said.
“It has remained steady throughout the year, even with base rate uncertainty. With regard to lender appetite, we are seeing more exceptions given on edge cases and quicker completions, meaning that commercial lenders want the business and are processing them effectively, which is great news for investors.”
Both brokers pointed to a notable shift in asset preferences. Offices remain out of favour compared with pre-pandemic norms, while mixed-use and semi-commercial property – often combining retail or commercial units with residential above – are attracting growing interest from both lenders and investors.
“Offices are still not quite as popular with lenders as they once were,” Rose noted. “Flexible working arrangements within companies means the demand for offices has been reduced – this is still a hangover from COVID, but the wind is changing slowly and we are seeing more offices come to market with lenders willing to lend.
“The most popular assets we are seeing is mixed-use. These provide the most comfort to lenders and borrowers alike. Having a residential element provides more stability to an investors incomes, and provides the comfort that lenders seem to be looking for.”
McCluskey reported similar trends, particularly among landlords moving out of traditional buy-to-let. “Retail and industrial storage applications are abundant and we see these as a higher percentage of our leads and applications,” he said.
“Semi-commercial property is something new commercial landlords are getting into first, as it neatly transitions an investor from residential rentals into a more complex area of borrowing.”
The shift is being driven in part by yield and diversification. McCluskey noted that the income profile of semi-commercial stock is proving attractive at a time when regulatory and financial pressures are weighing on the buy-to-let market.
“The higher income that can be achieved from commercial units, combined with residential rental income, means yields can be highly favourable,” he said. “With regulatory and financial pressures in the buy-to-let space, mixed-use property can be a great route for diversification and financial reward.”
On lending criteria and risk, both brokers suggested that credit policy has not loosened as quickly as funding costs. Rose argued that lenders remain reluctant to stretch beyond lower-risk, prime opportunities. “Lending criteria is not coming into line as quickly as borrowing costs have reduced,” he said.
“Lenders are still looking to take minimal risk which is understandable considering the fallout from COVID and the recent economic issues the country has faced,” said Rose, director at TR Financial. “We need to see lenders wanting to take more risks and looking at deals in a more holistic way, rather than from a rigid box-ticking process.”
For borrowers, one immediate risk is valuation and exit. McCluskey warned that the gap between expectations and valuation evidence can be acute on remortgages, while the pool of potential buyers is often limited. “The biggest risk for borrowers currently is down-valuations on remortgages and resaleability,” he said.
“Simply put, it’s not as easy to sell a commercial property as it is a two-up, two-down residential property that will attract homebuyers and investors alike. Commercial premises need the right person, at the right time, with a very specific set of needs before they will sell.”
At the same time, both brokers highlighted areas where they see “savvy” investors pursuing value. Rose pointed to transactions where investors can move quickly on pricing or add value through planning and redevelopment. “Clients are always on the hunt for the good deals, such as below market purchases, or opportunities where value can be added quickly – planning opportunities or conversion and extensions,” he said.
“This is still where borrowers are willing to take risk where they have the experience and contacts where they can add value to an asset. They can then sell for a nice profit or diversify their incomes streams.”
McCluskey identified land as a growing focus, albeit one with clear constraints on leverage. “Investment in land is the biggest opportunity for commercial borrowers at the moment,” he said.
“The majority of lenders currently offer up to 50% loan to value, and where planning permission is in place for development we can secure up to 65% loan to value. There is a higher risk for lenders offering funds at a higher loan to value on land, as there is nothing tangible as an asset except the land.”
Looking ahead, both brokers expect macroeconomic conditions and structural trends to shape commercial finance demand and pricing. Rose argued that falling costs are essential to restoring confidence and unlocking further investment. “Economic trends will have the biggest impact,” he said. “This seems obvious but as costs reduce, confidence comes back into the market which brings investors to the party.”
McCluskey, meanwhile, underlined the continuing influence of e-commerce on retail property and the role of longer-term fixed-rate borrowing in reshaping remortgage flows. “The impact of growth in e-commerce is not at an end: it will continue to hit retail units significantly, as this is only growing as an industry,” he said.
“Inflation staying high could impact affordability for investors, as rates will remain high,” he said. “More five-year products are being submitted recently, which means the remortgage market may shrink over the next few years as renewals take longer to come around.”
Regulation and tax policy also remain a live consideration for investors weighing commercial property against other asset classes. Rose suggested that, for now, the sector may escape the sort of regulatory tightening seen in parts of the residential market, but warned that tax remains a deterrent and that wider political uncertainty has a direct impact on investor sentiment.
“There has been talk of more regulation for this market, although I think if the FCA’s recent relaxation of regulated lending is anything to go by, I think the commercial market is safe from too much overbearance from the regulator – for now,” Rose said. Although taxing regulation is still something that puts investors off.
“However, political uncertainty seems to eek down to the wider economy so it would be good to see the powers that be get their houses in order, to provide more confidence to everyone, not just property investors and lenders.”
McCluskey added that complexity in commercial investing is likely to reinforce demand for professional advice, particularly as newer landlords explore semi-commercial and commercial assets to boost yield. “Newer landlords are now entering the commercial market as the yield can be highly beneficial,” he said.
“Given this area of investment is so complex, this will no doubt encourage the idea that using a broker and getting advice will be more important than ever.”
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