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Commercial real estate’s next cycle will be defined by quality, not scale
Alan Harber, London and South East Area Director for Real Estate discusses the latest trends in commercial real estate investment.
Read time: 6 mins Added: 05/02/26
Why quality is now decisive
This shift is being driven by a combination of structural change and economic reality.
Higher interest rates, tighter regulation and evolving occupier expectations have raised the bar for what makes an asset worth backing. In response, capital is becoming more selective, focusing on assets with clear strengths rather than those built on assumptions about future growth.
The assets proving most resilient share several characteristics.
- First, income security matters. Long leases with strong tenants provide dependable income and help insulate against volatility.
- Secondly, location remains critical. Assets in areas with reliable long-term demand, whether driven by transport connectivity, population density or economic activity, continue to outperform.
- Finally, asset quality is increasingly decisive. Buildings that meet modern standards for energy efficiency and amenity are better positioned to attract occupiers, retain value and secure long-term funding.
As a result, access to funding is increasingly aligned with the same fundamentals driving performance - quality, sustainability and durable demand.
In practice, this is reshaping how projects are financed. Investment and development funding, including funding for refurbishment and repositioning, is increasingly focused on assets with strong covenants, clear income profiles and the ability to meet future efficiency standards. For borrowers, this places greater emphasis on working with lenders who understand both the asset and the long-term trajectory of the market.
This is where specialist tools and expertise become increasingly important. At Lloyds, this includes capabilities such as our Green Buildings Tool, alongside dedicated real estate relationship teams, which help assess asset quality, energy performance and long-term resilience as part of funding decisions.
Retail and logistics focus on relevance over reach
In retail, this quality-led approach is evident in the continued strength of destination-led formats and retail parks anchored by national brands. These assets benefit from convenience, accessibility and a tenant mix that reflects how people now shop, combining everyday needs with leisure and experience. Where retail has a clear role within its local economy, demand remains robust.
By contrast, secondary retail without a compelling offer or footfall proposition is facing increasing pressure. The divergence between prime and sub-prime has widened, reinforcing the idea that relevance is what sustains performance, not volume.
A similar dynamic is playing out in industrial and logistics.
Demand remains strong but increasingly concentrated in well-located assets with strong transport links and modern specifications. Connectivity, adaptability and efficiency now matter as much as size, particularly as supply chains evolve and last-mile delivery becomes more critical.
Fewer, better offices
The office sector perhaps best illustrates the market’s shift to quality over quantity.
While working patterns have changed, demand for office space has not disappeared, it has become more selective. Occupiers are prioritising buildings that support productivity, wellbeing and sustainability, and are willing to pay premium for quality.
Grade A offices with strong ESG credentials, energy efficiency and high-quality amenities - from cycle storage and showers to flexible collaboration space - are attracting tenants and sustaining values.
Older, inefficient buildings in weaker locations are increasingly being left behind, regardless of price. This clear divide is accelerating the move toward fewer, better offices rather than a broad return to pre-pandemic norms.
Sustainability remains a filter for capital
This quality-driven market, no matter the sector, is centring around sustainability.
Buildings that fail to meet rising environmental standards face higher costs, reduced demand and an increased risk of fading relevance as tenants prioritise spaces fit for the future.
Equally, assets that are already energy-efficient, or capable of being upgraded, are better placed to attract occupiers, manage operating costs and remain investable over the long term.
In this sense, sustainability has become a filter for capital, determining which assets remain attractive for long term funding, investable and competitive over time.
As a result, there is growing demand for funding that supports both acquisition and transition. Financing structures that enable upgrades, retrofits and energy-efficient development are becoming an important tool for owners and developers looking to protect long-term value while meeting regulatory and occupier expectations. This includes sustainability-linked lending, such as Lloyds’ Buildings Transition Loan and Clean Growth Financing Initiative, which are designed to support both new investment and the transition of existing assets to higher environmental standards.
For owners and developers, this has practical implications: buildings that meet higher efficiency standards are not only more attractive to occupiers, but also easier to support with long-term finance.
Next phase outlook
As the next phase of the cycle takes shape through 2026, the implications of this shift are becoming clearer. The next phase of commercial real estate investment will be defined less by expansion and more by discipline. Capital will prioritise assets with the fundamentals to carry value through the next cycle: strong covenants, energy-efficient design and locations where demand is proven and durable.
For investors, developers and businesses, navigating this environment requires careful judgement.
Understanding how sector trends, local market dynamics and regulatory pressures intersect is increasingly important. Funding decisions, in turn, need to support long-term resilience rather than short-term scale.
Commercial real estate remains a cornerstone of the UK economy, underpinning how people shop, work and live. The opportunity now lies in backing the right assets, those that reflect today’s realities and are equipped to adapt to tomorrow’s demands.
In a quality-led market, progress depends not just on identifying the right assets but having funding partners with the experience to support investment, development and transition through the cycle. As commercial real estate continues to evolve, the ability to combine disciplined capital with informed judgement - and to support assets through the cycle - will be critical to sustaining performance.
At Lloyds, our nationwide team of specialist Relationship Managers combines deep local market insight with the expertise to help you secure the right financing for your next commercial property investment. Ready to take the next step? Contact me today at Alan.Harber@lloydsbanking.com.
Meet the author
Alan Harber
South East and London Area Director, Real Estate
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