Navigating uncertainty: Residential pressures, commercial promise

Market confidence underpins the residential development and commercial real estate markets but is in short supply. That was the stark message shared with participants at our real estate roundtable in central London.

Our Real Estate team hosted a roundtable breakfast for 17 residential and commercial developers, commercial investors and landlords, agents and funders. Discussion focused on the challenges facing entrepreneurial residential developers, commercial developers and investor landlords.

The mood amongst residential developers is caution. Whilst the government may have an ambition to deliver 1.5 million homes over its term in office, delivery of those new homes is likely to fall short. Housebuilding starts has fallen from 240,000 a few years ago to just 180,000 in 2024.

Viability pressures, the high cost of planning and weak buyer confidence are the cause, leaving developers carrying considerable risk. By example, one developer at the breakfast pointed to planning costs of £500,000 for a 30-home scheme.

Affordable housing targets add further pressures, with social housing providers facing considerable financial constraints to meet stock remediation and net zero obligations. They are also reluctant to take on small pockets of affordable housing spread over wide geographic areas, with developers left with little choice but to renegotiate section106 obligations with local authorities.

Yet there was guarded optimism in the room. Interest rates are expected to fall, as too will the already competitive cost of borrowing. Participants agreed that if buyer demand returns – and it will – supply will follow.

Confidence in commercial

After a challenging 2025 where commercial property “flatlined”, confidence and activity has begun to return. But a two-tier market is very much in evidence.

Prime, refurbished space, close to good transport links in London – two-to-three-minute three-minute walk from a tube or mainline station – continues to be in demand. Secondary office space and those over a five-minute walk from transport links, by contrast, face longer voids and significant incentives. Rent-free periods of up to 24-months were referenced.

Where lease lengths fall – and five years with a break after three are typical – rent free periods are limited to just two or three months. Landlords want to see occupiers paying as quickly as possible.

Industrial remains resilient, with overseas investors, particularly from the Far East, more active than domestic investors. They are increasingly happy to explore opportunities outside of London. 

Funding available

Given the caution in the market, it might be reasonable to expect the funding landscape to echo the same. Yet funding remains “vibrant”. Competition between banks and funders have compressed margins, with leverage and competitive pricing available for credible borrowers.

Cashflow strain from longer sales cycles and voids is driving increased use of alternative and bridging finance. Participants heard that there are rising concerns over lightly regulated non-bank lenders and the potential “build-up of systemic risk”.

Our real estate roundtable reflects a market not in crisis, but in a holding pattern’ viable capital, improving cost stability and emerging green shoots in the commercial sector are set against fragile confidence in the residential market.

The Government’s greatest challenge is not to deliver 1.5 million homes but to dramatically improve confidence. If it can do that, the real estate industry will build. 

If you’re navigating viability pressures, funding complexity or shifting demand across residential and commercial assets, now is the time for clear, strategic advice. Get in touch with our Real Estate team for expert guidance.