New report reveals UK real estate lending market showing signs of recovery

A new report reveals that the UK commercial real estate lending market is beginning to recover after a challenging period.

According to Bayes Business School's bi-annual publication, which collects data directly from 80 banks, insurance lenders and debt funds, new loan volumes increased by 11% year-on-year to £36.3 billion by the end of 2024, with activity particularly strong in the final quarter following two Bank of England base rate cuts.

Industry experts predict the UK will lead the global real estate recovery in 2025, with investment volumes expected to increase by approximately 15%.

The current lending landscape

While commercial real estate lending is increasing, traditional lenders remain selective:

• UK banks provided 46% of new loans in 2024
• International banks contributed 31%
• Debt funds were less active at 17%

This selective approach from mainstream lenders means many viable development projects still struggle to secure funding through conventional channels. While lenders are active in certain sectors, their appetite remains concentrated on specific asset types.

The Bayes report reveals clear preferences among lenders:

• Prime office and industrial/logistics properties attract the highest number of lenders (87% willing to lend)

• Student housing is the third most attractive sector, with 82% of lenders offering finance

• Prime residential developments follow closely with 79% of lenders providing funding

However, this appetite drops dramatically for secondary assets, with many sectors struggling to find financing. Secondary office properties, for instance, attract only 26% of lenders compared to 87% for prime office assets.

Recognising this challenge, the All-Party Parliamentary Group for SME Housebuilders, chaired by Sarah Edwards MP, has made "exploring ways to improve funding opportunities for smaller developers" a key priority in its forward programme for 2025.

The loan maturity challenge creates opportunity

A significant portion of existing loans need refinancing soon:

• 38% of new lending in 2024 went toward internal refinancing
• £32.6 billion in loans are expected to mature in 2025

This creates a substantial refinancing requirement while lending criteria remain relatively stringent, opening opportunities for alternative financing structures to fill the gap.

Development finance's unique potential

Development finance—loans funding construction or renovation of property—presents a distinct opportunity in today's market because:

1. Less competition from banks: Traditional lenders are focusing on refinancing rather than new development projects.
   
   
2. Different risk-return profile: Development finance typically carries different yield structures due to shorter time frames (18-24 months).
   
   
3. Asset-backed security: These loans are secured against the underlying real estate, providing investors with a degree of protection. 

How retail investors can access this market

The bond structure Shojin uses allows individual investors to participate in development finance loans that were traditionally only available to institutional investors. Find out more about how it works here. 

This approach provides lower minimum investment thresholds than direct property investment while still offering attractive returns and exposure to the UK real estate market.

The varied UK real estate outlook

The recovery across UK sectors is expected to be uneven:

• Residential, logistics, and alternative assets like data centres show strong fundamentals
• Office and retail face ongoing challenges from changing work patterns and consumer habits
• Location and sustainability credentials increasingly differentiate asset performance

The current market transition—with increasing lending activity but selective traditional lending—creates potential for retail investors to participate in development finance opportunities through platform like Shojin, during an evolving phase of the property cycle.