Perspectives 2025: Navigating the real estate landscape
As part of our ongoing series that takes a look at 2025, we spoke with Stacey Baxter, a senior commercial banker from our dedicated real estate finance team, to get her views on the trends, challenges, and opportunities shaping the property sector.
Drawing on years of experience and a wide network of industry connections, Stacey shares her candid take on how the market is evolving and what businesses should be doing to stay ahead.
Stacey Baxter is a senior commercial banker based in our London office.
What are the most notable trends or developments you're seeing in your sector right now?
“Pre-election and the Autumn Budget created an atmosphere of caution among clients,” Stacey explains, pointing to high interest rates and the lingering effects of the 2022 economic crisis. Many property investors braced for tax hikes, such as changes to inheritance tax thresholds and stamp duty relief, which have “spooked the market further” since their confirmation in the 2024 Autumn Budget.
Even with inflation stabilising and two modest rate reductions, Stacey shared that future forecasts in interest rate deductions have now shifted to a much slower pace following the Autumn Budget.
Stacy noted that affordability remains a key issue.
“The Bank of England base rate is now forecast to flatten at 4% in 2025, rather than the previously expected 2–3%. This has continued to squeeze landlords’ returns and affect mortgage affordability, which could drive rental growth to unsustainable levels, noting Savills have forecast rental growth ahead of income growth.”
For smaller landlords, this has led to tough decisions. “For someone with just one or two properties, the tax burden can make selling up the only viable option,” she notes. On the flip side, Stacey sees opportunities for well-capitalised investors. “Larger players with diversified portfolios are leveraging their liquidity to snap up distressed properties, refurbish them, and position for future growth.”
What are those in your network most focused on as we enter 2025?
“Beds and sheds remain at the heart of investment conversations,” Stacey says. The combination of a national housing shortfall and the growth of e-commerce continues to drive demand for residential properties and storage or distribution facilities.
“Residential investments continue to be an area of growth because demand far outweighs supply,” she adds. “Savills projects a 4% rental growth in 2025 and a cumulative 17% growth over the next five years, reinforcing the attractiveness of residential investments.”[1]
Retail properties, on the other hand, are struggling. “Economic pressures and tenants’ preference for shorter lease terms are squeezing yields and driving down values,” Stacey explains. However, she notes that “hybrid workspaces and sustainable green offices remain attractive.”
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Are there any emerging areas or conversations in your network that are particularly exciting?
While excitement is tempered by scepticism, Stacey highlights the government’s ambitious pledge to build 1.5 million new homes in four years. “It’s a bold promise, but there are challenges, such as interest rates and stricter building regulations, for example, that make it difficult to see how it will be achieved,” she observes.
She calls for creative solutions to these challenges. “Perhaps more PDR schemes or the use of brownfield sites could help, but developers need stronger incentives to act,” Stacey suggests.
“It will be fascinating to see if and how these obstacles are addressed.”
What challenges or risks are you hearing about from clients or colleagues in the sector?
Negotiating commercial leases has become increasingly complex, as previously mentioned. “Tenants are reluctant to commit to long leases without break clauses, which is putting downward pressure on yields and property values,” Stacey explains.
High interest rates also remain a persistent challenge. “Affordability for acquisitions and refinances has become tougher. When rental income doesn’t cover the interest covenants, deals often collapse due to lower loan-to-value requirements.”
The incoming rental reform which will result in rental caps is a very topical challenge right now, Stacey acknowledged. “It’s good news for tenants, but for landlords, it’s put an urgency into reviewing their portfolios to ensure their rents are in line with the market before they’re restricted to how often they can increase rent in the future.”
Another really important issue is sustainability. “While tighter EPC regulations have been delayed until 2030, the changes are still coming,” Stacey emphasises. “Landlords must act now to improve their properties energy ratings or risk being unable to rent or sell them in the future.”
How would you describe the overall sentiment in your sector – are people feeling optimistic, cautious, or something else?
“Sentiment is mixed,” Stacey says.
“Many are cautious because interest rates are unlikely to drop as quickly as initially expected. But for larger players with cash reserves, this is an opportunity. They can acquire distressed assets at lower values, often at auction, which offers a sense of optimism for those well-positioned.”
What trends or shifts do you think will dominate conversations in your network this year?
The looming Basel 3.1 regulatory changes, set for early 2027, remain a major talking point. “We’re in a period of limbo as the implementation has been pushed back, and there’s speculation it might be renegotiated altogether,” Stacey notes.
Housing demand will continue to dominate conversations, she predicts, as will sustainability. “EPC ratings temporarily took a backseat due to affordability concerns, but energy efficiency improvements will soon become unavoidable. Millions of homes will need upgrades to comply with tighter regulations, otherwise we run the risk of holding stale stock that cannot be rented out or sold.”
Based on your conversations and observations, what thoughts would you give to businesses or clients preparing for 2025?
“Preparation is key,” Stacey advises. “Businesses should review their finances, particularly any loans maturing in 2025, and explore refinancing options ahead of time.”
She also encourages investors to evaluate their portfolios. “Consider releasing equity to take advantage of market conditions and position yourself for growth. The right sectors – like residential – with the right location, could yield significant returns.”
Stacey emphasises the importance of sustainability. “Banks are increasingly focused on lending against properties with strong EPC ratings or clear strategies to improve them,” she explains.
“Review your stock now and make necessary upgrades sooner rather than later to avoid issues down the line.”
From what you're hearing, what role do you think we can play in helping clients navigate 2025?
“We can play a critical role in helping clients weather the challenges of a high-interest-rate environment,” Stacey says. “Providing tailored financial solutions, such as equity releases or bespoke loan structures, can be a lifeline for property investors looking to renovate, improve sustainability, or refinance their portfolios.”
“In particular, there’s a growing need for support with EPC upgrades and sustainability compliance. Offering financing solutions to help clients future-proof their properties – whether through improving energy ratings or tackling cladding remediation – will make a significant difference in helping them maintain the value and viability of their assets.”
Stacey also highlights the value of collaboration. “Clients can leverage our expertise not just in real estate but also across commercial banking, wealth management, and private banking, as well as connecting with other clients and our professional advisers. By understanding their broader needs, we can connect them with teams and resources that support them through different stages of their journey – both for business and for their personal world,” she explains.
Ultimately, Stacey sees Arbuthnot Latham as more than a real estate finance lender. “We’re a trusted partner who can help clients navigate complexity and find opportunities for growth,” she says. “In a market as uncertain as this one, that level of support is invaluable.”
Perspectives 2025
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This article is part of our Perspectives 2025 editorial series, exploring insights and trends across a range of topics that are of interest to our clients.
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