Retail commercial mortgages

Retail is the asset class where the gap between the headline UK commercial mortgage rate and the rate a specific deal actually prices at is widest. We have placed retail deals at 7.25% in the same week we have declined retail deals at any rate. The reason is that retail in 2026 is not really a single sector for lenders. It is at least four sub sectors with quite different risk profiles and quite different lender lists.

We arrange commercial mortgages on retail across the United Kingdom and what we have learned is that the briefing call needs to start with what the building actually is, who is in it, and what the lease says. The location matters, but it matters less than the covenant and the lease length on top of it.

The four retail sub markets, plain English

Convenience and food driven retail prints the tightest pricing in the sector. A neighbourhood Co op store, a Greggs unit, a Costa drive thru, an Aldi anchored row of units, all sit in the bankable category for most of our lender panel. Rates are 7.25% to 7.95% on a five year fixed at 60% to 65% LTV. The reason is simple, lenders trust food retail covenants and trust footfall on locations chosen by national operators after their own due diligence.

Retail parks and out of town schemes, where the let is to a mix of national operators with reasonable WAULT, also remain bankable. Pricing sits in the 7.50% to 8.50% range at 55% to 65% LTV. The challenge here is usually deal size, retail park investments often run to seven and eight figures, which narrows the lender list to challenger banks rather than building societies.

Drive thrus, kiosks and ground rents are the niche but liquid corner of the sector. A standalone freehold drive thru with a 15 year lease to a national coffee operator at a low passing rent is one of the easiest commercial mortgage files we write, irrespective of broader retail sentiment. Pricing is 7.25% to 7.95% at 65% to 70% LTV. Ground rents on long leases secured against retail buildings are a specialist niche but a real one.

High street retail outside the top thirty UK destinations is the hard part of the sector. The combination of declining footfall in many secondary towns, weak local tenant covenants and the structural shift towards convenience and out of town has narrowed lender appetite sharply. We can still write business here, but the LTV cap is usually 50% to 55%, the rate is at the wide end of the range, and the file needs a clear story on the building, the tenant and the location.

Underwriting nuances unique to retail

The standard property underwriting still applies, but on retail the lender pays close attention to four specific things that do not feature as heavily on other commercial mortgage sectors.

Tenant covenant strength is examined to a level that owner occupiers sometimes find surprising. The lender will run the tenant through a credit reference agency, read filed accounts where the tenant is a UK company, and form a view on sector risk independent of the property risk. A unit let to a covenant the underwriter cannot place will be priced as if it were vacant.

Lease term and break clauses sit underneath the covenant question. A 15 year unexpired lease to a strong covenant is a fundamentally different file from a five year lease to the same tenant. Break clauses, even tenant only breaks, are priced as re letting risk.

Rebased rents following lease re gear, common where high street rents have fallen sharply, are scrutinised. Lenders want to see that the rebased rent is sustainable not just for year one but across the loan term.

Use class flexibility under Class E is now a recognised resilience factor. A retail unit that can physically be converted to office, light industrial or gym use prices tighter than a single use shell.

When retail still works for owner occupiers

Owner occupier retail, where the trading business is the tenant, can price 50 to 75 bps tighter than investment retail of the same building, because the lender is underwriting the trading covenant rather than the property covenant alone. Independent food and beverage operators, hairdressers, beauty businesses, specialist independent retail with three plus years of clean filed accounts, can typically get 65% to 70% LTV on their own freehold at sensible rates. This is the corner of the retail market where high street locations still get done at reasonable terms.

If you are sitting on a leased shop and considering buying your own freehold, the conversation with a commercial mortgage broker now is usually a productive one.