Mortgage brokers have reasons to be cheerful when looking at commercial lending.

After several challenging years, the fundamentals are looking more positive: interest rates are on a downward trajectory, swap rates are easing, rental yields remain strong and lender appetite is increasing across key sectors.

“There’s a growing sense we’ve turned a corner in this market,” says Aria Finance managing director Lucy Waters. “We’ve seen a marked increase in enquiries and our pipeline is stronger than it has been for months.”

Sentiment isn’t universally bullish across all asset classes

Commercial Trust chief executive Jorden Abbs agrees. He has seen a jump in purchase and remortgage enquiries on pure commercial and semi-commercial business this year.

“The high yields and longer-term lease agreements on offer are a compelling proposition,” he says.

Economic uncertainty

However, there are still areas of concern. Ongoing economic uncertainty is putting a brake on activity from developers and investors.

SPF Private Clients executive director of commercial finance Dan O’Neil says: “Investor sentiment is trending towards a tempered optimism, albeit one that is yet to significantly impact transactions, with volumes around 20% below average.”

Envelop chief commercial officer Adrian Wickham shares this more moderate view.

The UK student housing market remains a compelling investment opportunity

“There are definitely reasons for commercial property investors to feel more upbeat,” he says, “although this sentiment isn’t universally bullish across all asset classes.”

So, what has contributed to this mixed outlook?

Connect for Intermediaries corporate director Kevin Thomson says signs of recovery started in 2024 — and momentum has continued. This is reflected in the latest UK Commercial Property Monitor from the Royal Institution of Chartered Surveyors, with over half of respondents believing the market has hit the bottom or is on the upswing.

Thomson says: “The capital value growth, together with rising rental values, has driven increased income returns for investors. UK property yields have remained stable, which gives confidence, and lenders are coming into — or back into — commercial markets, which is a clear sign of growth. This could lead to more relaxed criteria, including higher LTVs.”

Savills head of commercial research Mat Oakley says lender appetite, from both mainstream and specialist lenders, is as strong as he has seen it in recent years, with overseas lenders also looking to gain exposure to the UK market.

I believe the biggest opportunity will be for brokers and lenders who combine technology with traditional, flexible underwriting

But they are having to contend with a lack of activity from developers and investors.

“Lenders can’t find enough quality opportunities to finance,” says Oakley.

This creates competition around LTVs but, with valuations remaining high, some lenders are walking away rather than damage profit margins, he adds.

Oakley says rising construction costs, higher land prices, and political and economic uncertainty, both in the UK and overseas, are causing inertia among investors. He cites the rise in UK employers’ National Insurance, US president Donald Trump’s on-off trade tariffs and the British government’s stand on upward-only rent reviews as factors weighing on sentiment.

Mortimer Street Capital managing director for debt advisory Justin Trowse agrees, adding there are also regulatory pressures.

“The cost of upgrading stock to meet EPC and ESG standards remains a real consideration,” he says.

We are seeing many clients with traditional convenience stores with residential above turning exceptionally strong profits year on year

Waters adds: “Another hurdle is pricing alignment. Sellers’ expectations have often outpaced what buyers are prepared to pay, though encouragingly the average discount to asking price has narrowed in the past year. This suggests the gap is starting to close.”

Trowse argues that, while growth in the wider UK economy remains muted, opportunities in the commercial property market tend to be sector specific.

“For disciplined investors with access to capital — and the ability to hold through stabilisation — the current environment can deliver attractive returns, particularly in sectors with structural demand.”

Sector analysis

So, which parts of the commercial market offer the best opportunities at present? Many brokers favour the student market.

“Purpose-built student accommodation [PBSA] remains highly sought after, particularly near top universities, with many deals secured via pre-lets and forward funding,” says Trowse.

The shift to online business models and the growing demand for quality living space outside densely populated cities have opened opportunities in regional hubs

O’Neil agrees.

“Student housing remains a compelling investment opportunity,” he says. “Strong underlying demand, institutional momentum and consistently high occupancy make it advantageous for developers and investors.

“PBSA has outperformed core real-estate sectors such as retail, office and residential over three-, five- and 10-year horizons. Institutional capital remains robust, from pension funds to sovereign wealth funds and major developers like Unite Group, Empiric and Greystar.”

However, even here there are potential challenges, with brokers citing the Building Safety Act requirements (Gateway 2), planning delays and rising build costs.

“We hope anticipated base-rate cuts may ease financing costs in the second half of 2025,” says O’Neil.

Student housing isn’t the only growth area. The logistics and warehousing market has seen a surge in recent years, alongside healthcare-related assets, from labs to specialist medical and care facilities.

The cost of upgrading stock to meet EPC and ESG standards remains a real consideration

Oakley says the “stellar growth” in logistics may have cooled more recently but the sector is still delivering sustainable levels of growth.

Wickham adds: “The fundamentals for logistics, warehousing and healthcare-related assets remain strong, with resilient demand driven by long-term trends such as e-commerce, demographic shifts and the increasing need for community-based healthcare facilities.”

Other out-of-fashion sectors are also showing signs of recovery. Oakley says a move by desk-based employees back into offices — at least for part of the week — has created opportunities.

“In the best locations you might be getting between 6.75% and 7.5% yields on prime office space. This isn’t just in the South but in other major regional cities too.”

A lack of new developments means existing investors can be confident of sustainable rental yields.

“No one will be developing prime office space on their doorstep in the near future, particularly outside London where it remains harder to source development finance,” adds Oakley.

MFB senior commercial mortgage consultant Robin Tait agrees that offices are making a comeback, but says he sees more opportunity in smaller units, which are more affordable for tenants.

Encouragingly the average discount to asking price has narrowed in the past year. This suggests the gap is starting to close

Retail remains mixed. The continued rise of internet shopping has hit high-street profitability, but Oakley says there are opportunities in out-of-town retail parks focusing on goods less suited to online sales — such as beds and carpets — and in premium shopping centres that combine high-end retail with leisure.

Although the type of commercial property is key, location is another important factor.

Thomson says: “Regional cities such as Manchester, Leeds, Glasgow and Edinburgh, together with London, will thrive with redevelopments of quality assets to compete with new-builds for rental yields.”

Trowse adds: “Prime London locations will always attract interest, but demand is spilling into the regions.

“The shift to online business models and the growing demand for quality living space outside densely populated cities have opened opportunities in regional hubs.”

Broker opportunity

For brokers looking to diversify into this market, Abbs thinks semi-commercial property can be a good stepping stone.

“It’s an appealing way to get one foot into commercial property, while keeping the other on the familiar territory of residential letting.”

The high yields and longer-term lease agreements on offer are a compelling proposition

Commercial property is more complex, notes Abbs, but, with investors recognising the opportunities, many may look to brokers for financing expertise.

“We are seeing many clients with traditional convenience stores with residential above turning exceptionally strong profits year on year,” says Abbs.

“Some landlords are telling us their longer-term plans are to switch to an entirely commercial portfolio. But investors are exploring all sorts of options.”

Thomson says there are opportunities for brokers, but warns that commercial loans take longer to complete and have a higher fallout rate.

“As a brokerage, either employ a commercial specialist as a packager or join a specialist network that can support you in your educational journey in commercial mortgages,” he advises.

The next 18 months could see significant changes in the commercial market, given higher lender appetite, targeted investor interest and stronger fundamentals in key sectors. For brokers prepared to navigate its complexity, it offers both immediate opportunities and the prospect of strong medium-term growth.

There’s a growing sense we’ve turned a corner in this market

Waters adds: “Looking ahead, I believe the biggest opportunity will be for brokers and lenders who combine technology with traditional, flexible underwriting.

“AI is already improving efficiencies, but it mustn’t replace human judgement entirely. The best outcomes come when you balance data-driven decision making with the experience and creativity to make deals happen.

“If that balance is struck, 2026 could be the most promising year the sector has seen in some time.”

Click here to read an opinion piece on commerical mortgages by MT Finance