Debt is back as a weapon, not a shield
After a year of quiet recalibration, 2026 is shaping up as a year when UK SMEs use property and debt more strategically – upgrading assets, consolidating space and demanding faster, more agile funding. Lenders say the winners will be those who can package their story clearly and lean into the new cost and regulatory realities.
A quieter turning point: commercial debt becomes a tool again
The UK commercial lending market may not be booming, but something important has shifted as we head into 2026: debt is moving back from a defensive shield to a strategic lever.
“The commercial lending landscape in 2026 is moving from a story of caution to one of measured momentum,” says Chris Storey, chief commercial officer at Atom bank. “With debt costs falling and capital values stabilising, debt is once again becoming a value-enhancing tool rather than purely a survival mechanism.”
That shift is being driven from the real economy rather than from large institutional players. SME borrowers – often first to feel pain and first to spot opportunity – are starting to look beyond fire-fighting and instead at how they can use their premises and balance sheet more intelligently.
For Caroline Luxmore, chief commercial officer at Recognise Bank, that SME engine is crucial. “The SME space is constantly adapting. These are the businesses that keep the economy moving, they employ people, pay their taxes, and take risks. Helping them grow feels like giving something back,” she says. “Of course, we’re here to build a successful business of our own, but we’re also here to make a difference and keep such a critical part of our economy growing from strength to strength.”
Values steady, costs rising – and a “flight to quality”
On the asset side, there are early signs that the worst of the valuation volatility may be behind the market – at least for now.
“In terms of property values there appears to have been little movement in yields in 2025 which bodes well for the stability in these sectors for 2026,” says Luxmore. She tracks trends across office, retail, industrial and alternatives through prime and secondary yields, as well as data from sources such as Knight Frank, rent indices, unemployment and GDP: “They give great insight to the overall market at the moment.”
But if values are calmer, outgoings are not. Storey flags the 2026 business rates revaluation as a major new pressure point that will shape investment decisions. “The 2026 business rates revaluation is a significant new pressure point, with average rateable values soaring, particularly in sectors like logistics and hospitality,” he says.
The result, he believes, will be a more deliberate “flight to quality”: businesses may no longer chase maximum square footage, but instead consolidate into better space. “This creates an urgent imperative and the flight to quality properties may intensify. Businesses may seek to consolidate into smaller, high-specification, energy-efficient premises to offset rising operational and tax burdens.”
In practice, that could mean hotels upgrading to more efficient buildings to protect margins, wholesalers and manufacturers trading up to modern warehouses, or occupiers exiting tired secondary stock in favour of better-located, green-compliant premises that help with both running costs and ESG commitments.
Polarised performance: who needs finance – and for what?
READ MORE: UK commercial property in 2026: Stabilisation, not a boom
The demand story in late 2025 already hinted at where capital is flowing. Storey says Atom broke its own monthly and quarterly records for the value of commercial mortgage offers at the end of the year, but stresses that activity is not evenly spread.
“That we have broken our own monthly and quarterly records for the value of commercial mortgage offers at the end of 2025 highlights that demand is there, but it’s within specific subsectors of the commercial mortgage space,” he notes, citing hotels, factories, warehouses and wholesale traders as particular hotspots.
Looking ahead, he expects that polarisation to persist. “Logistics and industrial property will continue to attract investment due to resilient demand from e-commerce, while the best Grade A office space will thrive,” he says. “Conversely, older, less efficient assets will face difficulties, driving a strong need for finance geared towards green retrofitting and repositioning.”
That theme aligns with what Luxmore is seeing across the market’s moving parts. She is reluctant to put simple “good” or “bad” labels on sectors. “It’s hard to pick any sector over another, as there is always positives and negatives across all sectors, and lenders need to be alive across them all and understand the pros and cons in each,” she says. “In my view, giving sweeping statements based on one portion of a sector is not helpful.”
What she does insist on, however, is that challenging cycles always hold hidden opportunity. “Every market cycle brings its own headaches, but I have been around long enough to know there is always opportunity hiding somewhere,” she says. “Even now, with everything going on – inflation, regulation and world events – people still need homes, businesses still need finance, and that means there is work to do. You cannot sit still, and challenges make you think harder, get creative, and do better. If you lose that positive outlook in this industry, then you are in trouble.”
Appetite is back – but competition cuts both ways
On the lending side, the tone has also evolved. Over the last 12–18 months, higher base rates squeezed some projects out of viability and thinned the deal pipeline. That has, paradoxically, made the market more competitive for the transactions that do stack up.
“Competition over the past 12–18 months has increased largely down to reduced deal numbers in a higher interest rate market,” says Luxmore. “Aligned to this, we are seeing new bridging lenders come into an already crowded market. This has had the impact of putting pricing under pressure and keeping everyone on their toes in terms of appetite.”
In that environment, agility becomes a differentiator. “The lenders who can react quickly, adapt products, and move faster than the rest will come out stronger,” she says. “For us, that is where being a smaller, more agile bank helps.”
Storey also expects lenders to lean into niches where they can move decisively and support more complex plays such as retrofits and repositionings. “Atom bank is firmly committed to providing the flexible, high value funding required to support these vital investment decisions and help UK businesses navigate the new operating cost dynamic,” he says.
For borrowers and brokers, the message is clear: there is capital to deploy, and in some cases sharper pricing, but they will need to demonstrate that their scheme is resilient to rising costs, regulatory change and an increasingly binary market between best-in-class and obsolete stock.
Execution is everything: what brokers must do now
READ MORE: Tight liquidity, tough models: SMEs feel the Budget’s hidden impact
Taken together, these trends point to a year defined less by expansion and more by selective upgrades, consolidation and repositioning — with capital deployed deliberately rather than at scale.
In a market where lenders are competing but selective, the way a case is put together can make the difference between a fast “yes” and a slow “no”.
“Great packaging, a good understanding of the customer and the exit will more often than not lead to a quicker approval,” says Luxmore. “Most brokers understand their customers well, and lenders like simply packaged and well explained transactions. If the structure is complex, a good diagram always helps!”
With green retrofits, consolidation plays and operational cost challenges all in the mix, that “exit” piece is no longer just about a refinance or sale at year five – it’s about demonstrating how the business will trade through higher business rates, changing demand patterns and evolving ESG standards.
Brokers who can, articulate clearly why an SME is consolidating, relocating or upgrading, quantify the impact of efficiency measures and rate changes, and show a realistic route to refinancing once upgrades are complete will be better placed to capture the “measured momentum” that Storey describes.
Outlook: opportunity for the prepared and the positive
No one is promising fireworks in 2026. But for SMEs and investors who see property as a strategic asset – and for brokers who are prepared to get into the detail of costs, regulation and asset quality – the year ahead could prove quietly transformative.
Values look less volatile, lenders are under pressure to deploy, and a wave of regulatory and cost changes is forcing businesses to take a hard look at the premises they occupy and own. For those willing to adapt, that combination creates room not just to survive, but to upgrade.
Or, as Luxmore puts it, there is always opportunity somewhere – provided you don’t lose your nerve: “You cannot sit still, and challenges make you think harder, get creative, and do better. If you lose that positive outlook in this industry, then you are in trouble.”
