"Market momentum can’t do the heavy lifting alone; significant emphasis must also be placed on how deals are structured and delivered"
- Shakeel Adli - Zunikh
In a higher-rate market, property-backed strategies need to be judged less on broad market momentum and more on asset quality, structure, delivery capability and the evidence behind the assumptions.
The current economic backdrop has forced a more careful assessment of property-backed strategies and development risk. While the latest inflation figures offer some encouragement compared with previous months, 2.8% is still above the Bank of England’s 2% target, and borrowing costs remain significantly higher than in the ultra-low-rate environment that shaped much of the market before 2021.
This has changed the basis on which property-backed propositions are assessed.
Cheap debt, rising values or broad market momentum can no longer be relied on to support a weak property strategy. In a higher-rate environment, the quality of the site, planning position, strength of local demand, capital structure, delivery route and exit strategy all matter more.
Tangible assets still require scrutiny
Greater selectivity in a cautious market is understandable. However, selectivity should not be confused with inactivity; the issue is whether a property-backed proposition can be properly evidenced.
Property is different from many asset classes because it is linked to a physical asset with a practical use. Whether it is residential accommodation, student housing, industrial space or another form of commercial real estate, there is something tangible to assess. It is possible to examine the location, planning position, occupier demand, income potential, development risk and exit options before any commercial decision is made.
Of course, having a tangible asset to focus on doesn’t completely remove risk. A property-backed proposition is only as strong as the assumptions behind it. Any assessment still needs to consider the quality of the asset, the credibility of the long-term strategy and the evidence supporting any future value assumptions.
Structure is where the strategy is tested
In the current market, the asset is only the starting point; the structure behind it is coming under just as much scrutiny.
That means the planning route, capital stack, funding assumptions, construction programme and exit strategy all need to be understood as part of one connected case. A site may have strong potential, but that potential becomes harder to support if the structure relies too heavily on rising values, loose timing assumptions or cheap refinancing.
This is where sound legal, financial and development judgment is critical. More resilient property-backed propositions are likely to be those where the asset, capital structure and delivery route can be assessed together, with clear evidence behind the assumptions.
In other words, the market is increasingly asking whether the structure around an asset can stand up to scrutiny.
Higher interest rates have raised the bar
The Bank of England’s base rate, which heavily influences borrowing rates, remains significantly higher than the lows of 0.1% seen as recently as December 2021. This shift has changed the standard of proof for property-backed strategies.
When borrowing costs were lower, the market had more room for error. Higher finance costs now affect the entire commercial case. A credible strategy now needs to account for the price paid for a site, how long funding is committed, the level of value creation required to make a scheme viable, and what happens if market conditions move against expectations.
This raises the bar for every property-backed project or strategy. Projects and transactions are likely to face greater scrutiny around whether they have been structured to stand up to current conditions.
An attractive property asset alone is unlikely to be enough. A fragile funding structure, weak cost controls or over-reliance on rising values can all weaken the commercial outcome in 2026.
The propositions most likely to stand up in this market are those where the fundamentals, structure and delivery route work together.
Deal structure and delivery are as important as momentum
Market momentum can’t do the heavy lifting alone; significant emphasis must also be placed on how deals are structured and delivered.
A credible assessment will typically look at where risk sits across the project. That includes how an asset is priced, the planning position, funding requirements, cost exposure, delivery timetable and exit strategy.
Delivery capability is particularly important. Planning complexity and regulatory requirements are affecting property delivery and viability. Planning, procurement, construction, cost control and project management are all likely to shape whether a project can deliver its intended value in practice.
The team behind the project is critical. Legal, financial and property expertise should inform site selection, deal structuring, planning strategy and delivery. A property-backed strategy also depends on whether the team can respond to challenges and deliver against the original plan.
This is all the more important when delays are more expensive, market conditions are unforgiving and profit margins are under greater pressure.
Discipline will define the next phase of the market
Commercial and residential property can remain relevant in a higher-rate market, but only where the fundamentals, structure and delivery plan are credible. The challenge is meeting today’s higher standard of evidence before any project, strategy, or structure can be judged credible.
This doesn’t necessarily need to be seen as a negative development for the sector. A market that requires greater due diligence is likely to favour clearer evidence: careful asset selection, disciplined structuring, realistic assumptions, local understanding and proven delivery capability.
In the next phase of the market, the most credible property-backed propositions will be those where the asset, structure and execution plan work together, and where the route to value creation is evidenced before decisions are made.
