The UK real estate market stands at a pivotal moment. With more than €500 billion of European real estate debt due to mature by 2027 – including an estimated €150 billion due in 2025 – the UK is at the heart of this refinancing wave.
But the challenge goes beyond maturities and valuations. The market is now simultaneously grappling with heightened regulatory scrutiny and shifting financing dynamics, especially in the burgeoning private credit market.
Regulators are worried about the opacity and risks associated with private credit and non-bank lending, with global leaders highlighting potential hidden risks – so-called "cockroaches" in the system.
To succeed, borrowers, lenders, and investors need to focus on three things: acting early, partnering with the right lenders, and embedding ESG and governance discipline throughout the financing process. Those who adapt will emerge stronger in this new era of transparency, risk sensitivity, and accountability.
The refinancing challenge: A UK lens
According to Bayes Business School’s UK CRE Lending Report (October 2025), new UK Commercial Real Estate (CRE) lending reached £22.3 billion in the first half of 2025, up 33% year-on-year. This signals a modest recovery in liquidity, particularly for prime assets.
However, the same report revealed that most of this activity was refinancing, not new investment. Secondary-market loan syndications also surged, exceeding £10 billion in the first half of this year – almost matching the total syndications for the whole of 2024.
Despite this activity, stress is building in certain areas of the market. Default rates among debt funds for example rose to 20.3% in H125, up from 15.2% at the end of 2024.
As the Bayes report points out, traditional banks, while cautiously increasing exposure to CRE lending, have not returned to pre-pandemic levels of activity. Banks and building societies accounted for approximately half of all UK CRE lending in H1 2025, with debt funds and insurers providing the balance.
What does this mean for the UK market? Three things:
- Liquidity is returning to the market, albeit unevenly. While total lending volumes are up, much of the activity reflects refinancings.
- There are also growing default risks, with the rise in debt fund default rates suggesting that refinancing activity is in part being driven by necessity, not opportunity.
- We’re seeing distinct valuation and ESG bifurcation, with prime, ESG-compliant assets attracting strong competition, while secondary or non-compliant stock often faces punitive terms – or no financing at all.
Private credit: Opportunities and risks
Where private credit was once a niche in UK real estate finance it is now a cornerstone.
To cite Bayes again, debt funds provided 62% of speculative development finance and 57% of total commercial development finance in the first half of 2025. The growing presence of debt funds has fostered competition, with margins for prime office loans narrowing from 249 basis points (bps) to 231 bps in the first six months of 2025.
However, this rapid growth has also raised concerns among regulators about hidden risks in private credit markets. In fact, regulators on both sides of the Atlantic have voiced deepening concern over opaque leverage and underwriting quality.
Jamie Dimon, CEO of JPMorgan Chase, warned that the private credit market could harbour hidden losses, remarking that “when you see one cockroach, there are probably more,” and Kristalina Georgieva, Managing Director of the IMF, said that risks in non-bank and private-credit markets “keep her awake at night.”
From a central bank point of view, Bank of England Governor Andrew Bailey cited “worrying echoes of 2008,” in recent private-credit failures and reaffirmed the need for transparency in leveraged real-estate lending. The FCA has opened reviews into valuation practices, conflicts of interest and disclosure standards among private-credit and private-equity managers active in UK real estate.
The implications for UK Real Estate can, again, be distilled into three key points:
- Borrowers must now evaluate the financial health and regulatory exposure of their lenders, perhaps as carefully as lenders assess them.
- Transparency and disclosure are differentiators. With lenders under regulatory scrutiny, they are demanding more granular asset-level data and ESG documentation.
- Liquidity risk is systemic: if private-credit vehicles face redemptions or regulatory curbs, refinancing capacity for UK CRE could contract quickly.
ESG: A Gateway to capital?
In the UK, ESG compliance has shifted from a bonus to a requirement. Industry data indicates that the vast majority of lenders now incorporate ESG criteria into their lending decisions. Most will not finance unrated or non-compliant buildings, and the remaining lenders often impose significant pricing penalties for such assets.
Highly compliant ESG assets, on the other hand, continue to outperform. Market evidence shows that highly rated sustainable offices in central London command significant valuation and rental premiums compared to non-compliant counterparts.
For borrowers, this means:
- ESG compliance is now a baseline criterion for securing access to capital and competitive financing, not a bonus.
- Non-compliant properties risk value impairment and obsolescence without substantial investment in retrofitting for energy efficiency and sustainability.
- There are real financing benefits, with green financing structures, such as sustainability-linked loans, offering borrowers tangible cost savings and improved asset valuations.
Early action: The advantage of timing
Timing has become a critical success factor in the current UK real estate debt market. Bayes’ report rightly cites, from our experience, that borrowers who begin refinancing discussions 12–18 months before debt maturity consistently achieve better pricing and covenant terms.
Proactively engaging with lenders not only enhances the likelihood of securing financing but also provides borrowers with the opportunity to assess their lenders’ financial health and regulatory exposure. This is an increasingly critical consideration given recent concerns about private credit transparency.
To this end, for borrowers, scenario-planning is essential. Borrowers should prepare for the possibility of lender pullbacks or regulatory-driven constraints. Diversifying options is also now key, and engaging both traditional banks and private credit funds in parallel can strengthen negotiating positions. Through all this there is the absolute need to be transparent and proactive: data-driven borrowers who clearly communicate their ESG plans and portfolio performance often secure better terms and faster execution.
Sector selectivity: Focus on resilience
Certain sectors of UK real estate are proving to be more resilient in the face of market challenges. According to the Bayes Report, offices and logistics led UK CRE lending activity in H1 2025, followed by residential build-to-rent (BTR) and student accommodation. In contrast, secondary retail and older office stock without ESG compliance continue to face challenges in securing competitive financing.
What does that look like in reality? We’re seeing ‘winners’ in areas such as Logistics, BTR, student accommodation, and prime offices with strong ESG credentials, who are attracting the bulk of lender interest. At the other end of the scale, secondary offices and non-essential retail properties are struggling, particularly where energy efficiency and sustainability upgrades are needed to maintain value. That said, there is a school of thought that pricing is stabilising and opportunities are beginning to emerge.
Regulatory reckoning: Understanding the “cockroach” risk
The October 2025 regulatory commentary underscores a pivotal message: private credit is now systemic.
To succeed, UK borrowers and lenders must prepare for greater reporting requirements (loan-level transparency, risk concentration disclosures), potential capital rule adjustments impacting bank and insurer participation in leveraged real-estate lending, and market volatility as regulatory pressure triggers repricing of opaque or high-leverage assets.
For the UK market, this is not a reason for alarm – it is a call for professionalism. The path forward lies in data transparency, robust structuring, and aligned incentives between borrower and lender.
The Winning Formula for UK Real Estate
- Engage early: Begin refinancing 12–18 months before maturity; model downside scenarios and lender stress.
- Prioritise counterparty quality: Evaluate private-credit lenders for regulatory exposure, capital strength and governance.
- Embed ESG: Treat sustainability metrics as essential for access to capital.
- Focus on resilient sectors: Logistics, residential rental, student housing, and high-quality ESG-compliant offices.
- Plan for regulatory oversight: Build transparency and reporting into financing structures before it’s mandated.
The way forward
The convergence of refinancing pressures, valuation adjustment, private credit risks, and rising regulatory scrutiny is reshaping the UK real estate debt landscape for borrowers and lenders alike. The message from both data and regulators is clear: this is not the time for complacency or delay.
Instead, success will come to those who act early, partner with transparent and well-capitalised lenders, and embrace ESG and regulatory expectations as opportunities rather than burdens. Those who don’t may discover the “cockroaches” first-hand.
The question is: how will you prepare for this new era in UK real estate finance?
For more information, contact Ian Guthrie, Partner and Head of Real Estate Advisory
This article first appeared in Green Street News on 12 November 2025
