Business Insights | Property and Debt in 2027: Can we be optimistic?

Lenders generally accept that interest rates will remain higher for longer. Ongoing geopolitical events, particularly the Iran conflict, continue to create uncertainty, with the interest rate environment likely to remain volatile while these pressures persist. UK CPI rise to 3.5% in September, up from 3.1% in August, driven mainly by fuel prices. Meanwhile, three-year and five-year SONIA swap rates have climbed by approximately 70 basis points since the beginning of July.

Higher borrowing costs will create challenges, particularly as significant loan refinancing volumes come into focus during the first half of 2027. Some of these maturing loans are secured against under-invested assets that will require fresh equity as part of any refinancing. Regulatory demands will add further pressure, including EPC requirements, continued Gateway delays and Basel 3.1.

Fiscal and policy decisions will also influence the outlook. The implications of the latest UK Budget for property taxation, development costs, investment appetite, and business confidence will be important considerations for both lenders and investors. Against this backdrop, borrowers will need to demonstrate greater resilience in their financial assumptions and a clear understanding of the risks affecting their assets.

Notwithstanding these challenges, the debt market remains highly liquid. Multiple lenders are willing to deploy capital, although they are more selective than ever. This has created significant competitive tension for the most sought-after transactions.

Margins have sharpened by approximately 20 basis points on the very best deals, with margins for some investment transactions being quoted in the low 1% range. Lenders are also increasingly comfortable holding larger loan positions, with individual commitments of up to £250m no longer unusual.

However, the availability of debt should not be confused with universal access to finance on the same terms. Sponsors are placing greater emphasis on certainty of execution and transparency around lending structures. At an increasingly early stage in negotiations, borrowers want to understand precisely which lenders are involved and how any debt will be distributed. There is a clear premium attached to bilateral lenders and smaller lending clubs, where borrowers have greater visibility and control over the financing process.

The question today is not whether debt is available, but where and how it can be deployed most effectively, and at what price relative to the risks involved. 

Industrial & Logistics, Living, and Offices have remained the three most active sectors for lending over the past 12 months. However, the range of opportunities attracting capital continues to widen.

The Living sector continues to offer compelling opportunities for lenders, supported by the ongoing need for housing provision and the potential for resilient occupational demand. Despite this, the strength of individual propositions remains critical, with operational performance, income sustainability, and sponsor quality all influencing lending decisions.

A notable amount of capital has also been committed to Data Centres this year, while an increasing number of lenders are actively exploring infrastructure and other real asset transactions. In these sectors, the quality of both sponsors and occupiers is proving particularly attractive.

For lenders, the opportunity is clear, but so too is the need for careful consideration of asset quality, income resilience, operational complexity, and sponsor experience.

As lenders become more selective, the quality of the underlying asset and the strength of the sponsor’s proposition are increasingly important.

Valuation sits at the heart of every lending decision. Lenders need an evidence-based understanding of an asset’s current value, its income-producing potential and the risks associated with its future performance. In a market where values have adjusted and uncertainty remains, borrowers need to present a clear and compelling case to support their valuation expectations.

Equally important is the resilience of the underlying income. Strong occupancy, sustainable rental income, and effective management of non-recoverable costs all contribute to a lender’s confidence in an asset’s ability to service debt. A credible business plan, supported by realistic assumptions and a clearly defined exit strategy, is also essential.

This is particularly relevant where assets require repositioning, additional investment or operational improvements. Lenders will want to understand not only the potential returns, but also the sponsor’s ability to deliver the proposed strategy and manage any downside risks.

In investment markets, sentiment has shifted across several sectors, with some yields already beginning to soften. Most observers expect further yield expansion in the coming months. Strong occupational performance and the prospect of rental growth in certain sectors will help mitigate these adjustments, although they are unlikely to offset them entirely.

Further valuation adjustments should, however, help narrow the gap between vendor expectations and purchaser affordability. This is an important development for the market. Greater alignment on pricing should support transaction activity, creating a healthier balance between debt required for new acquisitions and refinancing.

Importantly, occupational fundamentals across most sectors remain resilient. Strong occupancy levels continue to support income performance and debt servicing, while tenant arrears remain low. Rental growth across Offices, Retail, and Industrial also provides some underlying confidence.

We expect lenders and investors to start taking more decisive action as the market adjusts. While some borrowers will face refinancing challenges, this adjustment could contribute to a necessary market reset.

There is no denying that the market faces headwinds as we move into 2027. Geopolitical uncertainty, elevated financing costs, refinancing pressures, and regulatory requirements will continue to influence lending and investment decisions.

However, there are also compelling reasons to be optimistic.

The UK continues to attract significant pools of capital, despite many of the economic and geopolitical challenges facing the market being shared internationally. Debt remains available for the right opportunities, lenders are competing actively, and the range of sectors attracting financing continues to expand.

As transaction markets recover, the combination of more realistic pricing, resilient occupational fundamentals, and substantial available debt could support a stronger rebound than many currently anticipate.

Lenders that remain willing to deploy capital, whether bilaterally or in collaboration with other counterparties, will continue to find opportunities. Those borrowers who can demonstrate well-evidenced value, resilient income, credible business plans, and realistic exit strategies will be best placed to secure finance.

Ultimately, the challenge is not a lack of capital, but knowing where to put it to work. While risks remain, there are genuine reasons to be optimistic about the opportunities emerging across the UK property market.

At CBRE, we remain committed to supporting our clients through this evolving market, helping lenders and borrowers navigate the challenges, assess risk, and identify the opportunities ahead.