Atom bank has outlined a cautiously optimistic outlook for the commercial real estate (CRE) and housing sectors in 2025, following a difficult 2024.
Senior executives at the bank shared insights into expected market trends, highlighting both challenges and opportunities for the year ahead.
Tom Renwick, head of business banking at Atom bank, expressed hope for a recovery in the CRE market, citing stabilising economic conditions as a key factor.
He said: “2024 has undeniably been a challenging year, but there are reasons for optimism about the state of 2025 and beyond for the commercial real estate market.”
Renwick pointed to a more robust economic backdrop, including controlled inflation, potential interest rate cuts, and projected GDP growth of 1% to 1.5%.
These factors, he noted, could drive a resurgence in small and medium-sized enterprise (SME) lending.
He added: “I would anticipate a rebound in SME lending, with borrowing appetite buoyed by lower interest rates, allowing businesses to expand and invest.
“Challenger banks and specialists are well poised to deliver a large share of that lending – this group of lenders has outperformed the big five banks for three straight years now, helped by their agility and focus on delivering a great experience to customers, and that is likely to continue.”
In the CRE sector specifically, Renwick expected varied recoveries across different segments.
London’s tourism industry was a standout performer, which could boost investor interest in the hotel sector.
Renwick said: “Tourism has performed incredibly well in London this year, and with the expectation of higher levels of inbound overnight stays, investors may be keener than usual to back hotels.”
Meanwhile, shifts in remote and flexible work patterns were reshaping the office market, but Renwick observed potential growth due to a shortage of quality office space and increasing office-based employment.
Turning to the housing market, Richard Harrison, head of mortgages at Atom bank, emphasised the need for greater focus on housebuilding and support for first-time buyers.
Harrison said: “Housebuilding is clearly a big focus of the new Government, and that’s welcome.
“As a nation, we haven’t built enough homes to meet demand for decades.
“That housing shortage has contributed directly to the significant house price growth which has made homeownership such a difficult prospect for many first-time buyers,” he explained.
Harrison called for lenders to adopt more flexible policies to assist new-build buyers, particularly those with smaller deposits, in light of the removal of schemes like Help to Buy.
He added: “Lenders will need to embrace new-build buyers, and provide a more flexible attitude particularly around maximum [loan-to-values (LTVs)].”
He also addressed the rise in near-prime borrowers – customers who had experienced minor credit issues but were now looking to re-enter the mortgage market.
“The cost of living challenges of recent years has meant that more borrowers now fall into the near prime category, having had a minor credit blip,” Harrison explained.
With millions of borrowers across the country affected, he stressed the importance of innovation among lenders to support these customers.
He concluded: “Given the number of would-be borrowers involved, as an industry we need to see more lenders supporting these customers not only with their needs today, but also helping them regain prime status should they show improvement.”
