UK Commercial Real Estate Finance Faces Pressure From Rising Rates

Written by:

Steve Marcinuk

Date:

24 Apr 2026

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The UK commercial real estate market is under growing financial pressure as borrowers contend with higher interest rates, stricter lending standards, and more cautious investor sentiment. Unlike the sudden collapse in 2008, the current adjustment is unfolding gradually, with stress accumulating across multiple asset classes.

Azeemeh Zaheer, Director of Structured Finance and Capital Advisory at Colliers, has seen these cycles before. Zaheer has worked across US, UK, and Gulf Cooperation Council markets and built a transatlantic asset management firm.

Zaheer notes that real estate’s cyclical nature often leads to repeated mistakes, even as the details change. “We all know that real estate is inherently cyclical, yet we keep making the same fundamental mistakes driven by the same optimism bias and overconfidence – even as the underlying logic and market conditions evolve,” says.

Private Credit Under Pressure

A major force shaping today’s market is the wave of private credit investments made during the ultra-low-interest rate period from 2021 to 2023. Zaheer shared, “The global private credit market now stands at around $2 trillion, yet the ultra-low-rate conditions that drive its explosive growth have reversed sharply.”

Private credit funds, flush with capital during the low-rate era and beyond, faced pressure to deploy money quickly or risk underperforming. As Zaheer explains, “To deliver returns to investors, they have to put money to work immediately.” Zaheer explains, “Idle capital carries a cost. Standards slipped. Lenders wrote riskier loans simply to keep capital moving.”

Now, borrowers who locked in sub-3% rates must refinance at much higher costs. Prime deals now carry rates above 4.5%. Average commercial property loans fall in the 6.5–7% range, and riskier deals exceed 8%. At the same time, property values have declined, squeezing margins further. Many owners now face refinancing under tight or negative cash flow, especially where assets have lost value or carry high vacancies.

Office Sector Requires a New Approach

The office sector has not fully rebounded. Hybrid work has persistently reduced demand for traditional office space, even years after the initial COVID-19 disruptions. Hybrid working remains the norm at many firms, including Colliers, where staff divide time between home and office.

This persistent shift in work patterns and the increased sustainability standards for landlords has left many office buildings with elevated vacancies. For owners, the combination of higher debt costs and lower rental income creates a difficult environment in some parts of the UK. Zaheer recommends office landlords focus on operational efficiencies, including reducing business rates and cutting expenses, to protect cash flow amid weakened pre-pandemic demand.

The solution? Zaheer thinks it is mixed-use. “Every asset should have an element of mixed use.”

Where Opportunities Still Exist

Despite the challenges, Colliers is working on deals that illustrate both the complexity and potential of the current market. Zaheer’s structured finance team targets sectors where real economic demand supports investment.

One unexpected area of activity is football clubs. New regulations require UK football clubs to generate sustainable revenue beyond player trading, creating openings for real estate development. Colliers is advising five clubs on projects ranging from new stadiums to mixed-use developments. One club is building a £190 million stadium complex with retail, hotel, and hospitality components, converting the property into a year-round income source. Another club is developing industrial facilities on its land, projected to add £4.5 million in annual revenue that can be reinvested in operations and players.

Affordable housing is another focus, bolstered by UK government support. The government has allocated nearly £40 billion over the next decade to address housing shortages, including non-repayable grants. This funding supports construction of homes in the £300,000–£400,000 range, appealing to developers able to structure deals that meet grant requirements. The government’s commitment and the creation of seven new towns signal a significant pipeline for residential development.

Healthcare real estate is also attracting attention, particularly from US investors who see opportunity in the UK market. The NHS covers rent for general practitioners. The introduction of new diagnostic technologies is also driving demand for modern medical facilities.

Middle Eastern Capital in Flux

A key variable for the UK market is the future of Middle Eastern capital inflows. London has long relied on investment from sovereign wealth funds in Saudi Arabia, Kuwait, Qatar, and the UAE. Geopolitical and economic pressures are changing the calculus for these investors.

Zaheer points to significant losses in the region, including daily capital outflows from the UAE and Qatar’s £20 billion loss at an LNG facility. These developments raise questions about whether Middle Eastern sovereign funds will redirect capital toward domestic infrastructure rather than international assets. Historically, these funds have owned large portions of London real estate. Zaheer suggested, “London is still seen as a strong diversification and safe haven to regional volatility. There are no known fire sales.”

The pivotal question is whether these sovereign funds now redirect capital toward domestic infrastructure projects at home, rather than continuing to chase international yield.

Zaheer suggested, “Maybe the Middle East institutions will consider higher income-producing portfolios in less traditional markets to hedge income loss from the oil revenues, but that is just pure speculation. No one knows how long this war will go on and how long the Middle East will be able to sustain with its current output.”

Slow Correction, Not Crash

Zaheer expects a protracted correction rather than a sudden crash. “It’s not going to be easy,” she says, “but it will not be the 2008 collapse,” she predicts. However, a slow pace does not mean a mild impact. Large institutions that offered liquid investment products backed by illiquid real estate loans are now restricting withdrawals as investors seek to redeem capital. “You can’t really redeem something that’s based on a non-liquid real estate loan,” Zaheer says. Some funds have imposed redemption quotas to manage outflows.

For investors and developers with access to capital and the ability to act quickly, these market dislocations present opportunities. As Zaheer puts it, “In every down cycle in real estate, there’s going to be good opportunity in the UK because of all this restructuring and borrowers that are going to need to exit out.”

Strategies for Today’s Market

Success in this environment depends on financial flexibility. Zaheer advises investors to prioritize patient capital and avoid overleveraging. “In a perfect world, investors get patient capital and friendly debt and do not maintain high leverage,” she says. “And if you can’t have it all, try to get pragmatic and helpful debt.” Drawing on experience from previous cycles, she stresses the need for preparation and diversification: “You don’t have a crystal ball, so you have to hedge considerably and consistently. Even when times are good and you think you don’t need that reserve or contingency plan, do it anyway.”

As the UK real estate market works through this period of adjustment, refinancing pressures, shifts in global capital flows, and evolving demand patterns will shape the next wave of winners and losers. Those able to structure deals for today’s realities, with flexible financing, strong operational discipline, and a clear read on where demand is resilient, will be best positioned as the cycle plays out.

The market’s gradual reset will reward those who plan for uncertainty, maintain liquidity, and adapt to new conditions. For both established players and new entrants, the coming period will test not just financial resources but the ability to navigate a landscape where caution, discipline, and creativity are essential.

About the Expert: Azeemeh Zaheer is Director of Structured Finance and Capital Advisory at Colliers, where she advises clients on complex financing and investment strategies across commercial real estate markets. With experience spanning the US, UK, and Gulf Cooperation Council regions, she brings a global perspective to navigating market cycles, capital flows, and structured debt solutions.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.