Commercial is steadying, not surging – with prime, sustainable and living assets winning, regions rising, and only well‑packaged deals getting a “yes” in 2026
The UK commercial property market is heading into 2026 on firmer ground – but talk of a broad-based “rebound” is still premature. Lenders and borrowers are navigating a market that is stabilising in parts, bifurcating in others, and increasingly unforgiving of weak assets or thin business plans.
That’s the message from Conor McDermott, director of SME lending at LHV Bank (pictured left), and Tom Renwick, head of business lending at Atom Bank (pictured right), who both see improving sentiment – but with recovery very much led by refinancing and underpinned by asset quality, ESG, and execution.
Stabilisation, but an uneven recovery
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Both lenders agree that 2026 is likely to feel more stable than the turbulence of recent years – but the picture is highly sector‑specific.
McDermott describes prime, sustainable office space as “holding up”, while secondary office assets continue to suffer “value pressure”. For retail, he draws a clear line between local and convenience retail, which is “performing resiliently”, and more discretionary formats.
“Experiential and destination formats [are] seeing selective recovery,” he notes, but “legacy high‑street stock remains challenging due to structural shifts rather than just cyclical weakness.”
Industrial and logistics continue to be one of the bright spots. Fundamentals “remain solid with vacancy rates generally low and demand…stable,” says McDermott, even if rental growth has come off its pandemic‑era peaks. Higher construction costs and planning delays are restricting new supply – a headwind on one level, but also a factor “supporting stabilisation.”
For Renwick, the headline story is stabilisation led by refinancing rather than new acquisitions. He says Atom is “definitely seeing signs of stabilisation, but it’s a recovery led by the refinancing of existing debt rather than a boom in new acquisitions.”
At Atom, offers “surged in H2 2025, particularly post‑budget,” which he sees as “a strong signal both of renewed confidence and ability to service demand.”
As with LHV, he sees a clear split by asset type: “Industrial assets continue to enjoy positive value growth and remain highly liquid, while ‘living’ sectors remain resilient. However, the office market remains polarised and more fragile.”
Alternatives and regions in the spotlight
If there is a consistent “winner” in the current landscape, it’s the alternatives and living‑related sectors.
McDermott points to sectors like purpose-built student accommodation (PBSA), build‑to‑rent (BTR) and healthcare/care and supported living as showing “the strongest signs of stabilisation,” underpinned by “structural undersupply, strong occupancy and…long‑term demographic drivers.” Institutional capital remains comfortable with these sectors, providing another layer of support.
Both lenders also highlight strong regional cities as standout stories for 2026.
McDermott sees upside in “strong regional cities with diversified economies and infrastructure investment (e.g. Manchester, Birmingham, Bristol).”
Renwick echoes that, saying he is “particularly positive about the UK’s regional growth stories. While London stabilises, we are seeing robust activity in key regional hubs like Manchester, Birmingham, and Newcastle. Commercial property investors are chasing yield in these markets and often finding better value than in the capital.”
On the cautious side, both flag older, secondary stock – especially in retail and offices.
Renwick is blunt: “Caution remains on secondary retail and older office stock. The ‘brown discount’ is real; assets that require significant capital expenditure to meet modern standards are becoming increasingly difficult to leverage.”
Lender appetite: from caution to competition – but with strings attached
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Over the past 12–18 months, lender appetite has clearly shifted – but in a way that rewards quality and punishes complacency.
McDermott sees “the continued and selective return of the High Street banks,” with margins having “tightened slightly from their peak as competition returns,” even though all‑in costs remain exposed to rate volatility.
He notes “modest upward movement in achievable leverage,” but stresses that the conversation has moved beyond headline LTV: there is now “greater emphasis on debt‑yield and ICR metrics rather than headline LTV alone.”
Renwick paints a similar picture of increasing competition for stronger deals. “The past year has shifted from caution to competition, with pricing compression over the last six months for prime assets and therefore, better deals for borrowers,” he says. “Leverage across the market is also creeping up. For borrowers with high‑quality assets, this is an excellent window to refinance, with many lenders actively competing to deploy capital.”
However, there are clouds on the horizon. Renwick warns that Basel 3.1 capital standards – due to bite fully in just over a year – could increase borrowing costs by raising the amount of capital banks must hold against commercial property investment loans. That “effectively [raises] the internal cost of lending which could force lenders to pass those higher capital costs on to borrowers.”
McDermott also stresses that lender favour is not evenly distributed. Strong sponsors and lower‑risk, income‑producing assets with “clear ESG credentials and manageable cap‑ex” are the ones being “reward[ed]…with better terms.”
What brokers and borrowers need to do differently
In a market that is more selective than ever, how deals are prepared and presented is now critical.
For McDermott, early engagement is non‑negotiable, particularly on refinances where valuation resets may bite. “Early engagement [is] essential, especially for refinances facing valuation resets,” he says, adding that there is “more need for flexible structures (e.g. cash sweeps, amortisation, retained/charge accounts) to bridge pricing and leverage expectations.”
What lenders are looking for is a coherent, credible plan, not just a spreadsheet:
- A clear leasing strategy
- A realistic cap‑ex roadmap
- ESG plans
- Sensible assumptions on rents, costs and timelines
He also stresses that sponsor strength and track record are “more important than ever.”
Renwick’s message to brokers is similar, but focused squarely on execution: robust, granular applications win.
“Lenders like Atom Bank are built for speed,” he says, pointing to record offer volumes. “However, we can only move that fast if the application is robust. Brokers who present granular data upfront get a ‘yes’ faster than those who submit vague proposals.”
2026: A year for realism and preparation, not speculation
Taken together, the lenders’ views point to a year of cautious optimism rather than exuberance.
Stabilisation is happening – led by refinancing, supported by alternatives and living sectors, and reinforced by strong regional cities – but the market remains unforgiving of outdated, cap‑ex heavy assets without a clear ESG and repositioning story.
For brokers, 2026 is shaping up to be a year where expertise and preparation genuinely add value: understanding evolving lender metrics, engaging early on refinances, building flexible structures, and packaging deals with the level of detail that modern credit committees now expect.
In other words, the rebound – where it appears – is likely to favour those who are best prepared, most realistic, and most willing to adapt to a more disciplined, data‑driven commercial lending environment.
