SEGRO PLC, a leading industrial property developer, has reported robust third-quarter results for 2025, even as the broader UK commercial real estate sector faces mounting headwinds from rising debt defaults and a shifting lending landscape. According to financial data published on October 21, 2025, SEGRO’s rental income increased by 3% in the third quarter, building on a remarkable 32% jump compared to the previous period. The company’s portfolio now stands at an impressive 231,600 square meters of industrial and logistics properties, with an occupancy rate holding strong at 89%.
Despite the company’s upbeat performance, the backdrop for the UK property market is increasingly turbulent. As reported by Bloomberg on October 22, 2025, a study from Bayes Business School highlights a surge in the market share of alternative lenders—non-bank financial institutions and debt funds—now accounting for 20% of property lending in the United Kingdom. This is a marked increase from 15.2% in 2024, with the share of these lenders growing by 2–3% annually in recent years.
SEGRO’s resilience stands out amid these challenges. The company manages a total of 37 million square meters of property space, with 53% of its assets located in the United Kingdom. SEGRO’s annual rental income has reached £53 million since the start of the year, and the company expects further growth in rental income in the coming quarters. The group’s development projects completed in the third quarter alone added 34,800 square meters of space and £8 million in annual rent. Since the beginning of 2025, SEGRO has completed projects totaling 231,600 square meters, generating £27 million in annual rent, with 89% of this space already leased or pre-committed.
But the broader market’s optimism is tempered by signs of stress. The Bayes Business School report, cited by Bloomberg, reveals that alternative lenders have seen their share of overdue loans soar to over 20% in the first half of 2025—nearly ten times higher than the 2–3% default rate among traditional banks. This sharp rise in defaults is a cause for concern, particularly as alternative lenders have filled the void left by banks that have scaled back their exposure to the commercial real estate sector since the 2008 financial crisis.
Neil Odom-Haslett, president of the Association of Property Lenders, underscored the gravity of the situation, stating, “It is a worrying sign that debt funds are showing a default rate of over 20%.” The Bayes report, based on data from 73 lenders, suggests that the proliferation of alternative lenders is a double-edged sword: while they have injected much-needed liquidity into the market, they have also introduced new risks as their share of lending has nearly doubled to 22% since Brexit, while the share held by UK banks has dropped to 39%.
Traditional banks, for their part, have worked to manage their bad loan portfolios, reducing defaults by 10–20% through refinancing and risk diversification strategies like loan syndication. Despite these efforts, the overall bad debt ratio in the market has doubled from a long-term average of 3% to 6.3%, even as some signs of recovery emerge in the commercial real estate sector.
Valuation disputes between buyers and sellers further muddy the waters. Properties acquired during periods of low interest rates often carry inflated price tags. As interest rates have climbed in the wake of the Russia–Ukraine conflict, property values have declined, leading to sluggish transaction volumes and a slower-than-expected price adjustment. This has pushed loan-to-value ratios higher for some borrowers, increasing financial strain.
Odom-Haslett cautioned, “We hope lenders will maintain financial discipline,” while warning about the rising prevalence of so-called covenant-lite deals—loans with looser terms—as lenders compete aggressively for a shrinking pool of deals, particularly in residential and logistics real estate. The fierce competition among lenders has, however, brought some benefits for borrowers. The Bayes study notes that both banks and debt funds have reduced their lending margins on prime office loans by 0.35% and 0.33% respectively, while secondary office properties have seen margins fall by 0.23–0.26%.
Nick Harris, head of cross-border valuation at Savills Plc, observed, “Competition for high-quality assets continues to intensify. Lenders are offering much lower margins and focusing on larger deals to maintain market share.” This dynamic reflects a market in flux, where lenders’ hunger for quality assets is driving down borrowing costs for some, even as risks mount for others.
For SEGRO, the company’s strong performance is underpinned by its strategic investments and disciplined financial management. In 2025, SEGRO invested £286 million in development projects—against guidance of around £400 million—and an additional £228 million in assets. The company expects these developments to generate a further £45 million in future annual rent, with 47% of this income already secured or pre-leased, including major warehouses in France and Italy. SEGRO has also secured power supply in key areas, supporting growth in its expanding data center projects.
The company’s balance sheet remains robust, with new loans and facilities supporting a moderate loan-to-value ratio of 32% and liquidity of £1.7 billion. This financial strength positions SEGRO to weather market volatility and capitalize on emerging opportunities, even as the broader sector navigates a period of heightened uncertainty.
Looking ahead, the interplay between traditional banks and alternative lenders will be critical in shaping the future of UK commercial real estate. The rapid rise of non-bank lenders has brought both innovation and instability, raising questions about the resilience of the sector in the face of economic shocks. As SEGRO’s experience demonstrates, disciplined management and strategic investment can deliver growth even in challenging times—but the risks posed by rising defaults and shifting market dynamics cannot be ignored.
In a market where fortunes can turn quickly, SEGRO’s steady hand and strong fundamentals offer a rare bright spot. For the wider industry, however, the next chapters will be written by how well lenders and borrowers adapt to an era of greater competition, tighter margins, and evolving risks.
