UK Commercial Property: Where Are We Now?
The UK commercial property market has navigated significant headwinds over the past three years - from aggressive interest rate rises through 2022-2023 to the recalibration of property values across most sectors. As we move through 2025, the market is entering a new phase characterised by improving financing conditions, selective investment recovery, and diverging sector performance.
For investors and developers seeking [commercial mortgages](/services/commercial-mortgages), [bridging finance](/services/commercial-bridging), or [development finance](/services/development-finance), understanding the current market landscape is essential for making informed decisions about acquisitions, refinancing, and development activity.
This analysis covers the key trends shaping the UK commercial property market and what they mean for finance-dependent investors and developers.
Interest Rates and Financing Conditions
The Rate Cycle
After the Bank of England raised the base rate from 0.1% in December 2021 to 5.25% in August 2023, the focus has shifted to the trajectory of rate cuts. Rate reductions that began in late 2024 have provided relief to commercial property borrowers, though rates remain substantially above the near-zero environment that prevailed for over a decade.
For a detailed analysis of how rate changes affect commercial property finance, see our guide on [interest rate changes and commercial property](/knowledge-hub/interest-rate-changes-commercial-property).
Impact on Borrowing Costs
Commercial mortgage rates have begun to ease from their 2023-2024 peaks:
- Prime commercial mortgages: 5.5-7.5% (down from 6.5-8.5% at the peak)
- Secondary commercial mortgages: 7-9%
- Bridging loans: 8-12%
- Development finance: 7-12%
While rates remain elevated compared to the pre-2022 era, the improving trajectory is encouraging transaction activity and refinancing decisions.
Lender Appetite
Lender confidence has improved. High street banks including **Lloyds**, **NatWest**, **Barclays**, and **HSBC** have re-entered sectors they retreated from during the rate-rise period. Specialist lenders such as **Shawbrook**, **Aldermore**, **Hampshire Trust**, and challengers like **Allica Bank** and **Investec** remain active across the market.
**Key Takeaway:** Financing conditions are improving but remain more expensive than the low-rate era. Investors should stress-test their acquisitions against current rates rather than hoping for a return to near-zero. The spread between borrowing costs and property yields remains tight in many sectors.
Sector Performance Analysis
Industrial and Logistics
**Performance: Strong**
The industrial and logistics sector continues to be the standout performer in UK commercial property. Key drivers:
- E-commerce growth sustaining demand for distribution and fulfilment space
- Onshoring and supply chain resilience driving demand for UK-based manufacturing and storage
- Limited new supply in many regions, keeping vacancy rates low
- Rental growth outperforming other sectors, particularly for modern, well-located units
Prime industrial yields have stabilised around **4.5-5.5%** after softening from their 2022 lows. Rental growth of **3-6% per annum** is being achieved in many markets.
**Finance outlook:** Lenders remain enthusiastic about industrial assets. LTV ratios of 65-75% are available at competitive rates. [Commercial mortgage](/services/commercial-mortgages) terms for well-let industrial properties are among the most favourable in the market.
Office Market
**Performance: Polarised**
The office market has experienced the most significant structural shift of any sector. The key trend is **polarisation between prime and secondary**:
- Prime offices (Grade A, well-located, ESG-compliant, modern amenities) are seeing stable or growing demand. Occupiers are willing to pay premium rents for quality space that attracts and retains talent.
- Secondary offices (older stock, poor locations, low ESG ratings) are suffering from rising vacancy, falling rents, and declining values. Many are candidates for conversion to alternative uses.
Prime office yields: **5-6.5%** in major cities Secondary office yields: **7-10%+** reflecting higher risk
**Finance outlook:** Lenders are selective. Strong appetite for prime offices with secure income. Very limited appetite for secondary offices, though some lenders will fund acquisition at low LTV if the business plan involves refurbishment or conversion.
Retail
**Performance: Recovering selectively**
After years of decline, parts of the retail market are showing recovery:
- Retail warehousing has been the strongest sub-sector, benefiting from click-and-collect, value retailers, and automotive use. Yields have compressed to 5.5-7%.
- Convenience retail (local shops, neighbourhood parades) remains defensive with steady demand.
- High street retail varies hugely by location. Strong towns are performing well; struggling high streets continue to decline.
- Shopping centres remain challenged, with very limited transaction evidence and cautious lender appetite.
**Finance outlook:** Retail warehousing attracts strong lender appetite. Convenience retail is financeable with the right tenant covenant. High street retail and shopping centres face restricted lender options.
Residential for Rent (BTR/PRS)
**Performance: Strong and growing**
The **build-to-rent (BTR)** and **private rented sector (PRS)** market continues to expand:
- Strong rental demand driven by affordability constraints on home ownership
- Institutional investment flowing into purpose-built rental schemes
- Rental growth across most UK cities
- Government policy supportive of increased rental supply
BTR yields: **4-5.5%** for institutional-grade schemes PRS portfolio yields: **5.5-7.5%** for traditional portfolios
**Finance outlook:** Growing lender appetite for BTR and multi-unit residential. [Commercial mortgages](/services/commercial-mortgages) for portfolio landlords and purpose-built rental are well-served by specialist lenders.
Healthcare and Alternatives
**Performance: Resilient**
Alternative property sectors including healthcare, care homes, student accommodation, and self-storage continue to attract investor interest:
- Demographic-driven demand provides long-term resilience
- Counter-cyclical characteristics make these sectors attractive in uncertain markets
- Specialist operators drive operational performance
**Finance outlook:** Specialist lenders serve these sectors well. Underwriting focuses on operational performance as much as property fundamentals.
Investment Market Trends
Transaction Volumes
UK commercial property transaction volumes fell significantly during 2023 as buyers and sellers struggled to agree on pricing in a rising rate environment. Activity has been recovering through 2024 and into 2025 as:
- Rate expectations have stabilised
- Buyer and seller pricing expectations are converging
- Refinancing pressures are forcing some sellers to transact
- Overseas investors are returning to the UK market
Yield Movement
After approximately 18-24 months of outward yield movement (falling values), most sectors have seen yields stabilise. The key question is whether yields will now compress (values rise) or remain stable:
- Bull case: Rate cuts accelerate, yield gap widens, values rise
- Base case: Gradual rate cuts, yields stable, rental growth drives returns
- Bear case: Economic slowdown, further rate rises, yields move out further
The base case - stable yields with rental growth providing returns - is the most widely held market view.
ESG and EPC Requirements
Environmental, Social, and Governance (ESG) considerations are increasingly influencing investment and finance decisions:
- EPC rating requirements for commercial lettings (minimum E rating currently, rising to C by 2027 for new leases under proposed legislation)
- Lender ESG policies preferring higher-rated buildings
- Occupier demand for sustainable, energy-efficient space
- Stranded asset risk for buildings that cannot be upgraded economically
Investors should factor EPC upgrade costs into acquisition appraisals and capital expenditure plans.
**Key Takeaway:** The UK commercial property market is recovering selectively, with strong performance in industrial, BTR, and convenience retail, while offices and high street retail remain polarised. Financing conditions are improving, but the spread between yields and borrowing costs demands careful analysis of each opportunity.
Regional Market Highlights
London
London remains the UK's largest and most liquid commercial property market, but performance varies significantly by sub-market and sector. The West End office market is showing resilience, while the City is more price-sensitive. London industrial is extremely competitive with some of the lowest yields in the country.
South East
Benefiting from London overspill for both occupiers and investors. Strong markets include the Thames Valley, M3 and M4 corridors for offices and industrial, and commuter town residential.
Major Regional Cities
Manchester, Birmingham, Leeds, Bristol, and Edinburgh continue to attract institutional investment. Office markets in these cities benefit from lower costs than London and strong talent pools. Industrial demand is robust across all regional markets.
North and Midlands
Industrial and logistics markets in the Midlands are benefiting from central location and motorway connectivity. Northern cities are seeing growing investor interest for residential and mixed-use development.
Implications for Property Finance
For Investors
- Refinancing: Now may be a good time to lock in fixed rates if your current deal is expiring, as rates have come off their peaks but remain above historical lows
- Acquisitions: Be selective. Ensure the yield spread over borrowing costs is sufficient to withstand a stress scenario
- EPC compliance: Budget for upgrade costs and factor these into your acquisition appraisal
- Sector focus: Industrial, BTR, and convenience retail offer the most favourable financing terms
For Developers
- Market timing: Development viability has improved as development finance rates edge lower and sales values stabilise
- Location selection: Focus on areas with evidenced buyer or occupier demand
- Pre-sales: Where possible, de-risk projects through pre-sales or pre-lets
- Exit strategy: Model your exit under current market conditions, not optimistic assumptions
Use our [calculators](/calculators/commercial-mortgage) to model current finance costs against your investment returns. For tailored advice on your property finance needs, [contact our team](/contact).
Summary
The UK commercial property market in 2025 is characterised by selective recovery, improving financing conditions, and significant sector divergence. Industrial and logistics, build-to-rent, and convenience retail are performing strongly, while secondary offices and challenged high street retail continue to struggle.
For investors and developers, the improving rate environment creates opportunities, but the days of ultra-cheap debt are behind us. Success requires rigorous analysis of each opportunity, conservative underwriting assumptions, and a clear understanding of sector dynamics.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*