There are lenders from 47 countries actively seeking to deploy debt capital into UK real estate, the most on record, Savills reports, but the number of transactions to lend against remains frustratingly low.
The increasing depth of the property financing market – a long-term trend – was revealed at this morning's 37th Financing Property presentation from Savills at Merchant Taylors' Hall in the City of London.
Savills said the variety of lender activity in the UK property market suggests investor requirements across broad debt requirements and risk appetite can be fulfilled. It said it has become increasingly difficult to keep up with the number of new entrants, which it used to list in full, and that there had been a clear increase in UK-based new lender entrants.
According to the Savills survey carried out ahead of the event, while respondents were more likely to lend and invest in the living sectors, residential development and prime logistics, the offices, retail and secondary logistics sectors all reported an improvement in lending sentiment compared with last year.
Opening the presentation, Nick Harris, Savills' head of UK and cross border valuation, said many lenders seem reassured by the fact that the UK is further along in its repricing cycle compared with Europe and added that some prime sectors are even experiencing a rise in values. But he said pricing uncertainty continues in some areas, which may be dampening transaction volumes. "This, in turn, is causing frustration among lenders due to the limited lending opportunities for new acquisitions."
According to Bayes' recent report on the market, just over £36 billion of loans were deployed in the UK in 2024, which was up on 2023 levels. But only 31% of that was for new acquisitions, which highlights the volume of refinancing activity.
Harris said Savills' figures found £52 billion of commercial real estate traded in 2024, up on 2023, but down on historic levels. He said that there had been £9 billion traded in the first quarter but early figures for the second quarter are picking up with £6 billion already accounted for.
Savills said the use of back leverage – which effectively sees debt funds borrowing money from third party lenders – is becoming an increasingly important part of lending activity, although it is remains difficult to quantify how big a part of the market it is.
Harris said: “Most lending activity has naturally centred around refinancing, a fair volume of which is from incumbent lenders seeking to amend and extend existing loan agreements whilst working collaboratively with their borrowers. However, some borrowers may face difficulties bridging funding gaps compared to their previous loan terms, given the rise in interest rates.
"With instances of over 30 lenders often vying for the same deal, this intense competition is putting downward pressure on both margins and, in some cases, loan-to-value ratios which can lead to favourable outcomes for borrowers. However, for those lenders who miss out, it raises the question of whether we’ll start to see lenders move up the risk curve in pursuit of future opportunities."
Harris said Savills has analysed 300 loans covering £20 billion of debt at an average loan to value of 57% running various stress tests and found around third of the loans are facing a funding gap. There continues to be a lot of "amend and extend" Harris said, but there is more interest from lenders in "moving up the risk curve".
Commercial matters
Addressing the commercial property market, Mat Oakley, head of commercial research at Savills, said the industry was still caught in an attitude of waiting for things to get calmer. "The question in the market is, can we get past the confidence gap?"
Oakley said the number of pulled and terminated deals for offices hit a record in the final quarter of 2024 and exceeded that in the first quarter of this year, and the market needed to see this diminish.
He said while UK commercial investment activity in the first quarter of 2025 was subdued, it was not the only country to experience a slowdown with most other major European countries also reporting investment activity below the five-year average. Additionally, global M&A activity reached its lowest point on record in April, suggesting investor capital is not being directed at other areas.
Oakley said it was clear that President Trump's tariff plans were of less importance for UK commercial property than the UK's own economic travails. "I think in the UK Autumn Budget we will see more tax rises and that could drag on household expenditure and the economy. That is more important than tariffs."
He also said some sectors of the commercial property market are likely to benefit from the US tariff plans. "We are seeing an increase in Chinese manufacturers enquiring about warehouse space as they turn to European markets to potentially replace the US. And investment banking may benefit."
Oakley said the occupational story in the UK remains solid and rental growth continues, driven by the lack of development.
"As the noise around tariffs diminishes, we should see a boost in investment volumes supported by the resilient occupational story, more debt availability, higher LTVs and some distress. Additionally, the returns could prove too attractive to ignore for some investors with UK retail and UK industrial sitting in the top quartile compared to other asset classes, returning over 10% in the year to the end of Q1 2025.”
Oakley said the logistics market had matured to more "normal levels of rental growth". As a positive he said there is clear evidence of reshoring and onshoring happening. "We found a third of logistics deals last year were for UK manufacturers, the highest in a decade."
The residential view
From a residential perspective, Savills highlights that there have been significant challenges in the short term driven by the stamp duty changes, which encouraged transactions ahead of the deadline in April 2025. This could lead to lower activity over the coming months. But the adviser said development activity is picking up, driven by planning reforms that deliver more certainty, especially for smaller developers.
According to the Savills European Investor Survey, PBSA and multifamily living continue to be the most in demand sectors for investment.
Emily Williams, director in Savills residential research team, said the broker is seeing improving affordability in the UK housing market which should help drive activity and pricing, despite economic uncertainty.
"However, there are still pockets of the market facing weakness amid continued mismatch in pricing expectations and policy changes which has impacted prime markets, particularly in central London.”