There was a 29% increase in new lending for commercial real estate (CRE) in the UK in 2025, reaching its highest level in a decade at £52.7bn.
The biannual report from Bayes Business School found that activity was driven by both non-bank lenders and UK banks, with 51% and 21% increases in new lending respectively.
Some £201bn debt is tied up in CRE, with an additional £34bn of social housing debt held by 11 lenders. The report found that nearly half of these lenders also operated across Europe, holding an additional £43bn of European real estate debt.
The report suggested that due to the slower market for new construction projects, lenders were competing for a contracted pool of business.
The report author, Dr Nicole Lux, senior research fellow at Bayes Business School’s real estate research centre, said: “For generations, UK banks were the dominant force in commercial real estate lending, but last year their share of the market fell from 40% to 36%, continuing a long decline since the arrival of debt funds 10-12 years ago.
“Debt funds were the clear winners in this process – increasing their market share from 12% to 28%. That surge means alternative lenders, including insurance companies, now hold 45% of outstanding CRE loans and seem set to break the 50% barrier over the next few years.”
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Outstanding commercial loans rose by just 0.8% year-on-year to £174bn, leaving lenders more reliant on refinancing activity. Meanwhile, 60% of lending involved refinancing, with nearly a third of CRE loans refinanced in 2025.
Further, the report estimated that around 19% of loans will mature this year, valued at £33bn, pointing to a continued need for refinancing.
The report suggested that competitive pricing resulted in lenders reducing rates, while others competed through loan-to-value (LTV) levels and fees.
It added that difficulties in the market also explained the concentration of business, with the top 20 lenders holding 69% of the market and originating 72% of loans.
MFS collapse dents market confidence
The report suggested that non-bank lenders typically took on more risk and failure tended to be due to underwriting discipline, documentation standards, monitoring and governance.
The rate of loans in default fell to 3.8% and 53% of lenders reported defaults, indicating a decline since the start of 2025, but this was still higher than the long-term average of 3%. While the quality of loans has improved since falling to a low during 2010-12, the report said the collapse of Market Financial Solutions had impacted confidence in the market.
Additionally, the report estimated that around 15-20% of CRE loans did not have agreements in place allowing lenders to intervene before a loan default happens.
Dr Lux said: “The two- and five-year SONIA rates increased by 30bps at the start of the conflict in the Gulf at the end of February. That came days after the collapse of UK bridging lender MFS, which exacerbated existing concerns about the failure of auto-parts firm First Brands, subprime auto firm Tricolor and UK invoice-finance firm Stenn.
“These developments have focused attention on the risk of asset-based lending where there are loose risk monitoring standards and a lack of regulatory control and audit. Unsurprisingly, that anxiety has spread to the real estate lending sector.”
Growth opportunities in development finance
Lenders said development finance was a key area of growth, accounting for 16% of new lending in 2025, up from 15% the year before. Development finance also accounted for 19% of all outstanding CRE debt.
Opportunities identified by lenders include logistics, residential and student housing, with most wanting to provide loans above £20m against sustainable properties.
