If you want a lower margin, now may be the time. According to the most recent Commercial Real Estate Lending Report from Bayes Business School, there is growing competition among lenders in the UK commercial real estate sector, which is leading to cuts in loan pricing in order to secure the limited transactions that are available. Prime assets owned by quality sponsors are becoming more appealing due to their scarcity. Despite a decrease in the number of new loans made in the first half of 2024, the lower volumes gave some borrowers more negotiation leverage and enabled them to secure more favourable financing terms. 

Loan margins and loan-to-value ratios for higher-quality assets have significantly decreased, according to the research, with lenders cutting rates to stay competitive in areas with fewer default risks. Non-prime assets, on the other hand, have experienced lower declines and have maintained more conventional pricing levels.

The report also highlights the growing presence of non-bank lenders, such as debt funds, and insurance companies who are increasingly stepping in to fill the gap left by traditional banks. More flexible arrangements and competitive terms are being offered by certain international banks and alternative lenders. 

Although margins have decreased due to competition, the report also identifies a concerning trend: a rise in distressed loans across lender portfolios. Rising default rates indicates a decline in the credit quality of existing loans, posing significant challenges for industries including retail and office.   

Overall, even though the competitive lending environment has created opportunities for certain borrowers, if volumes remain subdued in the longer term it puts lenders at risk. This scenario could potentially reduce the availability of financing and therefore negatively impact borrowers in the future.  As ever it is a balancing act. As the UK real estate market adapts to these changes in the short term, in the longer term both sides  will need to strike a balance between securing favourable financing terms and mitigating financial risks.