Just a few years ago, borrowing to buy UK commercial property was straightforward. Interest rates hovered below 3%, property values were rising, and private lenders were eager to fund deals. Now, heading into 2026, borrowers face a very different landscape: interest rates above 6% on most loans, lower property values, and looming loan maturities with limited refinancing options.
“We’re not going to see a sudden crash like 2008,” says Azeemeh Zaheer, Director of Structured Finance & Capital Advisory at Colliers in London. “But there’s going to be a slow, steady creep of defaults — especially in older office buildings and retail.” The current situation is the result of several pressures that have been building since the pandemic, all converging at once.
Why the Market Looks Different
Across central London and other major UK cities, vacant offices and “To Let” signs have become more common. Hybrid work has reduced demand for office space, leaving many buildings partially empty. Meanwhile, retail spaces that survived the pandemic now struggle with higher costs and less foot traffic.
Property owners who secured low-rate loans in 2021 are now facing refinancing at rates two or three times higher than before. A loan that cost 3% three years ago might now require a 7% rate. For buildings with vacancies or thin margins, this increase can erase any profit.
“Your debt servicing costs go up, your income stays flat or drops, and suddenly you’re underwater,” Zaheer explains. Many borrowers expected inflation to ease and rates to fall back, but that hasn’t happened. Lenders, seeing the risk, are tightening their standards.
What Created This Refinancing Crunch?
Three main forces have collided to create the current situation.
First, the private credit surge. Between 2021 and 2023, non-bank lenders raised about $2 trillion globally to invest in real estate debt. With so much capital to deploy, they initially made careful deals but soon began relaxing standards to keep money moving. “When you have that much money chasing deals, standards slip,” Zaheer says. Some lenders took on riskier projects than they would have in a more balanced market.
Second, persistent inflation. Costs for construction materials, labor, and energy have risen since the pandemic, amplified by geopolitical events such as conflict in the Middle East. Developers face higher bills, and landlords see operating expenses climb without keeping pace with rent increases.
Third, interest rates have remained high. Central banks raised rates to fight inflation and have not lowered them. For property owners, this means refinancing at much higher costs — sometimes making it impossible for a building to generate positive cash flow after debt payments.
How the Pressure Is Playing Out
This downturn isn’t a sudden crash, but a gradual tightening. Loans issued in 2021 are now maturing, and many borrowers are discovering they cannot refinance on similar terms. Some are negotiating short-term extensions with lenders. Others are quietly listing properties for sale, aiming to exit before their finances deteriorate further. A growing number are entering restructuring negotiations.
“It’s not front-page news yet because private credit doesn’t reprice daily like public bonds,” Zaheer notes. But the stress is building below the surface.
For buyers, these conditions are creating opportunities. Properties that would have sold at peak prices two years ago are now available at discounts, especially when the seller is facing imminent loan maturity and needs to close quickly.
For Buyers and Sellers
For Buyers: The current market presents a rare opportunity for those looking to enter the UK commercial real estate market. Focus on properties where the owner faces an upcoming loan maturity or where vacancies have forced prices down. Buyers have more leverage to negotiate, and motivated sellers are increasingly willing to accept lower offers.
For Sellers: If your loan matures within the next year, start planning now. Waiting until the last minute increases the risk that higher refinancing costs will erode your equity. Owners of older office or retail buildings with vacancies should set realistic prices — overpriced properties are lingering on the market.
For Small Investors: Caution is critical. Avoid high-leverage deals where rising debt costs could put you at risk. Instead, target assets with steady demand and reliable income, such as affordable housing or healthcare properties, which benefit from strong fundamentals and, in some cases, government support.
What Comes Next
The UK real estate market is not experiencing a sudden collapse, but it is undergoing a significant reset. Borrowers who expected to ride out higher rates are running out of time, and lenders are becoming more cautious. This shift will likely lead to more distressed sales, increased restructuring activity, and more chances for buyers with patient capital to acquire assets at lower prices.
“Every down cycle creates opportunity,” Zaheer says. The investors best positioned to benefit are those who avoid overleveraging and are prepared to act when good deals appear. As refinancing challenges grow, both owners and investors will need to adapt quickly. Those who plan, price realistically, and avoid excessive debt will be best placed to navigate the uncertainty ahead.
About the Expert: Azeemeh Zaheer – Director, Structured Finance & Capital Advisory, Colliers, London. Specializes in cross-border capital markets, restructuring, and alternative real estate financing across the UK and Europe.
This article is intended for informational purposes only and does not constitute legal, financial, or investment advice. The views and opinions expressed herein reflect those of the individuals quoted and do not represent an endorsement of any company, product, or service mentioned. Readers should conduct their own due diligence and consult qualified professionals before making any investment decisions.
