As we approach the end of the year, we’re discussing how well 2025 performed, the trends we expect in the commercial market next year, and industry predictions for commercial mortgage rates.
With 2026 fast approaching, it’s a good time to take stock of how the commercial property market performed this year. On the surface, the market struggled to recover as well as we’d hoped. However, instead of pessimistic predictions, we see an upturn in economic and investor confidence for the new year.
In this round-up, we’ll cover:
- The 2025 commercial market performance
- The trends we expect to see in 2026
- Commercial mortgage rate predictions for 2026
How did the commercial BTL market perform in 2025?
At the start of the year, the market anticipated a recovery from the sector's challenges in 2024. However, geopolitical conflicts, tariffs, and overall political sentiment have significantly impacted the commercial market and property investor confidence.
The Bank of England Base Rate (BBR) reductions have meant that commercial mortgage rate pricing has softened this year, although not considerably. Borrowing costs remain higher than we’d grown used to up until late 2022, but these slightly lower rates have encouraged more activity and refinancing.
Despite BBR reductions, ongoing economic uncertainty has left many lenders cautious, resulting in tighter lending criteria. Consequently, a property’s cash flow, viability as an investment, and debt-service cover ratio have been weighted more heavily during lender assessments.
Specialist lenders outperforming larger banks
Throughout the year, specialist lenders and challenger banks lent more than traditional or high-street lenders. This has led to an industry shift, with specialist lenders and their increased appetite becoming the new norm for many commercial property investors.
Specialist lenders often offer more flexible criteria, which means more investors can access funding at a competitive pricing point. This, alongside the higher appetite for lending and risk, means these types of lenders may be the best option for more borrowers. However, many of these specialist lenders are intermediary-only, meaning you can only access their rates through a whole-of-market broker (like us).
Working with an expert means we can find you a rate with the best lender to suit your needs.
Commercial investment trends in 2026
The industry expectation for the commercial market in 2026 is positive but steady growth. As mentioned, the market didn’t perform as initially expected this year, so we predict that the commercial sector will continue to build upon the recovery that began in 2024. Easing inflation, falling commercial mortgage rates, and continued investment in key property sectors all support this confident outlook.
Predictions for property sectors
Office spaces
Hybrid work will continue to impact the office sector next year, with demand to favour high-quality properties packed with different amenities that not all can provide. Consequently, older, less-efficient spaces are likely to face higher vacancy rates.
Industrial premises
Industrial and warehouse properties will continue to perform well in the new year. The ongoing growth in online shopping is just one strong contributor, which means investment will continue to flow into warehouses and logistics hubs.
Retail premises
Nearly six years after COVID hit our high streets, the sector is performing well. Increased consumer confidence has boosted retail spending, and therefore, we expect that prime shopping centres and retail parks will attract significant demand from investors in 2026.
The rise of semi-commercial investment
One of the main trends we’ve seen this year, which is only expected to grow, is the rise in semi-commercial property purchases.
Semi-commercial property investment has become so popular for many reasons, including:
- Higher yields and dual rental income streams: Having both commercial and residential tenants on one property provides you with two income streams, allowing for more security against void periods and market fluctuations, as well as the potential for much higher rental yields than standard commercial property
- Portfolio diversification from the buy to let space: We’ve seen many buy to let landlords diversify their portfolios by entering the semi-commercial space
- Tax-efficiency: Semi-commercial properties are classed as mixed-use, which exempts them from the 5% Stamp Duty surcharge which applies to purchases of additional residential properties. This allows investors significant savings when expanding their property portfolios
- Capital growth potential: With the retail sector bouncing back, semi-commercial properties offer high potential for long-term capital growth
- Less maintenance: In some cases, semi-commercial leases pass the responsibility for maintenance, insurance, and taxes to the tenant, which reduces time and costs for property investors
Commercial mortgage rate predictions for 2026
Rachel Reeves’ Autumn Statement is rumoured to be highly contentious. Any poorly judged policies are likely to shake money market confidence and put an extra strain on property investors already facing high mortgage costs. Whatever measures Reeves announces at the end of November will dictate SWAP rate pricing and, therefore, commercial mortgage rates in 2026.
We don’t anticipate any drastic change to commercial mortgage rate pricing in the new year. Any rate reductions we see will likely be modest, with the money markets taking a cautiously optimistic approach.
Lenders may become increasingly competitive with their semi-commercial offerings due to the rising demand amongst property investors. In which case, properties where the residential elements account for over 55% of the overall value will be rewarded with the best pricing.
Lenders will continue to offer lower rates for higher arrangement fees, and we have seen many rates with fees ranging from 1% to 4%. We also expect lenders to continue offering a percentage of the freehold value instead of the investment value. This has a habit of catching some borrowers out, particularly for those looking for high LTV mortgages.
We also anticipate that more investors will seek variable-rate mortgages rather than fixed rates due to market fluctuations and uncertainty.
Where does this leave commercial property investors?
Heading into 2026, commercial property investors are entering a cautiously optimistic market, with the economic and political turbulence of the past few years still casting a shadow. While lender criteria and mortgage rate pricing challenges remain, there are plenty of property sector opportunities for investors to take advantage of.
While 2025 didn’t deliver the full recovery many had hoped for, the groundwork has been laid for a more stable 2026. With the right strategy and flexibility for market trends, the new year could be pivotal for commercial investors looking to expand and boost their property portfolios.
Planning your next commercial mortgage?
If you’re planning to expand your commercial property portfolio or looking to discuss your refinance options, get in touch with our team of experts. We can help you navigate the complex commercial mortgage market and arrange you the most competitive deal for your circumstances.
Call us on 0345 345 6788 or submit an enquiry here.
