Outlook
“Liquidity is strong and the demand to borrow is strong. The art of advisory right now is bringing the two together – and executing.”
Edward Horn-Smith Partner
are still resisting those levels. The funds, in many cases, have stopped resisting, and that is what is setting the market price. Which brings me to valuations, which I think will be our biggest nemesis in the coming months. Valuations are built on comparables, and for a long period there simply weren’t any: everybody held on. The discounted sales of the last nine months have now given the market its evidence, and that evidence is feeding straight into reports. At the same time, several of the larger firms are managing live professional indemnity claims, which has produced a visible internal shift towards caution. Expect valuations to come in conservatively and expect Development finance is where the friction is greatest. Most developers who come to us for build cost funding already own their land, and, in many instances, at current numbers, land plus build cost is running at roughly the same level as the completed sale value. They are not building for profit any more; they are building to get their money back. Persuading a lender to underwrite that is genuinely difficult, because on a traditional loan-to-cost and loan-to-gross development value test – where the lender takes the lower of the two – long-held land is effectively valued at nil. The interesting development is that new capital is entering the UK specifically to price this differently, lending against GDV rather than cost, and backing sponsor quality rather than the arithmetic of a historic land purchase. For clients holding sites they cannot make work on conventional terms, that is a genuine unlock – and it is precisely the sort of option that only surfaces if you are talking to the whole that to be the point at which transactions are won or lost.
market rather than a panel of it.
Student housing will remain difficult and should be judged scheme by scheme. The international student market, particularly from China, has contracted sharply, universities are financially constrained, and government interest in apprenticeship routes adds another question over long-run demand. More broadly, we expect to see continued transition of use – sites consented for residential moving to student, then to co-living, then to something else again. Every one of those pivots carries holding costs, planning costs and a funding requirement, and lenders are becoming noticeably more willing to underwrite change of use as a result. The obvious caveats are macro. The escalating situation in Iran has a direct read-through to the cost of money, and, domestically, I believe, the new Prime Minister and an Autumn Budget mean a number of decisions will be deferred until people can see what is coming. Timing execution is harder than it has been for some time. What I am confident about is the direction of liquidity: the banks are reporting record profits and that willingness to lend is not about to reverse. In summary, the outlook for the rest of 2026 looks as follows. Strong liquidity continues. Demand to borrow from clients, investors and developers continues. The real art of advisory in this market is bringing those two things together and then executing – finding the right partner for each transaction, structuring it properly, and getting it over the line. That is what our clients are increasingly leaning on us for, and with the wider FRP platform now behind us, it is a job we are better equipped to do than at any point in the last 18 years.
I expect our opportunity over the remainder of 2026 to come from two directions. The first is refinancing. Liquidity within balance sheet lending is high, and it is being expressed as higher loan-to-values and cheaper margins rather than as a broader credit box – which suits the many good assets currently sitting on legacy terms. The second is acquisition finance for assets trading at a perceived discount, with some element of distress attached. Those two strands should account for the bulk of what we write between now and the end of the year. We are seeing institutional owners cut losses rather than continue to hold: one office transaction we are currently working on is being acquired at close to half what the vendor paid seven years ago. The pattern behind it matters more than any individual deal. Funds that piled into assets in the two years after Covid are now reaching the end of five-to-seven-year cycles, and their decision is no longer about the end of a fixed rate – it is about whether to realise a loss and recycle capital, or go again. Private investors
4 January - June 2026 Real Estate Funding Report
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