Commercial Property Development Finance

What is commercial property development finance?

Commercial property development finance is short-term funding for building, converting or substantially refurbishing property for business use (offices, industrial units, shops, hotels, healthcare premises and similar), released in stages against certified build costs and repaid from the sale or refinance of the completed asset. The facility is capped by the finished asset's value, its gross development value (GDV), which is assessed as an investment valuation, and by total cost, with interest usually rolled up rather than paid monthly. The exit is a sale to an investor or occupier, a forward sale completed at practical completion, or a refinance onto a commercial mortgage against the let or occupied building. Lending to companies and investors for commercial development is unregulated business finance.

The Office for National Statistics reports total construction new orders down 11.8% in Quarter 2 2026 against Quarter 1, with the fall coming mainly from private commercial new work, while construction output prices rose 1.9% in the year to June 2026 (ONS, Construction output in Great Britain: June 2026). Rising output prices feed into the contingency inside the cost plan, which lenders test.

Commercial development finance rates

Commercial development finance is priced through interest and fees. Interest is charged on the drawn balance and rolled up or retained. The fees are an arrangement fee on the facility, an exit fee on the loan or the GDV, monitoring surveyor fees for each drawdown, and valuation (on investment and vacant-possession bases) and legal fees. The parent property development finance page sets out the full cost structure.

As at 1 October 2026, the lowest development finance rate we were seeing was 0.45% a month, for the strongest schemes. Riskier schemes price above that, because pricing rises with leverage, scheme risk and the developer's experience. Every rate is subject to status and lender criteria and can change.

If you have a site with an occupier interested, or a pre-let in negotiation, get in touch before heads of terms are signed. The strength of the letting evidence decides the leverage, and we can tell you what the scheme supports.

Commercial development finance criteria

The figures below are what we see on the cases we arrange, as at 1 October 2026. They describe our experience across the lenders we use and are not a rule for the whole market. Each lender sets its own criteria, and the terms on any scheme depend on the scheme, the borrower and the lender's own assessment.

Asset classes and deal structures: how each is funded

Commercial development is underwritten twice: once for the asset class, which sets the exit market, and once for the deal structure (pre-let, forward-funded, forward-sold, speculative or owner-occupied), which sets how much of the exit is certain on day one.

Office development finance

New-build and comprehensively refurbished offices are funded on the strength of the letting evidence and the specification. Lenders look at the build quality, the energy credentials, the floorplates, and a pre-let or clear evidence of occupier demand. Speculative office development is funded selectively; in our experience the same LTGDV percentage applies, but on a lower, speculative valuation. The exit is a sale to an investor or a refinance onto commercial investment lending on the let building, and the commercial mortgage guide covers how that exit is valued.

Industrial, warehouse and logistics development finance

Industrial and logistics units are often developed speculatively, as multi-let trade or last-mile units, where the letting market supports it. Lenders assess site access and yard capability, power supply, eaves height and unit sizing against local demand, and the environmental position of the land, including an environmental search on former industrial sites. The completed asset refinances onto commercial mortgages, and the operational version is covered on warehouse mortgages.

Retail and leisure development finance

Retail development is funded on the anchor: a pre-let to a covenant-strength occupier (convenience, discount, roadside, drive-thru, trade counter) can carry a scheme that speculative discretionary retail cannot. Leisure (gyms, restaurants, family entertainment) is underwritten on the operator's covenant and the lease length, with change-of-use flexibility valued as downside protection. Mixed retail and residential schemes (shops with flats above) blend the retail exit with a residential one and refinance onto semi-commercial mortgages.

Hotel development finance

Hotel schemes are underwritten on the trading business the building will house: the operator and brand, projected occupancy, average daily rate and revenue per available room, the going-concern value at stabilisation, the planning use (Use Class C1 in England and Wales, Class 7 in Scotland) and the exit onto a hotel mortgage or a sale to an operator. Hotel development is specialist lending: on the cases we arrange, specialist lenders fund hotel schemes up to 65% LTGDV. Our hotel development finance page, our hotel mortgages page and apart-hotel development exits cover the exit in depth.

Healthcare and medical development finance

GP surgeries, dental practices, pharmacies and care homes are defensive commercial exits: NHS-backed leases on surgeries and regulated operators produce long, secure income that investors and lenders value. Development finance for a purpose-built surgery pre-let to a practice, or a care home let to a CQC-registered operator, is funded on the lease or operator agreement, and the commercial mortgage guide sets out the healthcare and care home lending positions.

Student accommodation and later-living development finance

Purpose-built student accommodation (PBSA) and later-living or retirement schemes are operator-led assets valued on stabilised income. Lenders underwrite nomination agreements with universities, the operator's management platform, the location relative to campus or catchment, the planning use (commonly sui generis or C2) and the sale or refinance of the completed block as an investment. Both sit outside standard residential lending at exit and are funded within the commercial ceilings on the strength of the operator and the income evidence. On the cases we arrange, PBSA development runs up to 65% LTGDV; see PBSA finance.

Mixed-use and semi-commercial development finance

Schemes with commercial ground floors and residential above are appraised on a blended GDV, with the commercial units valued on capitalised rent and the residential units on sales or rental evidence, and the leverage depends on the split between the two. The exit lands on semi-commercial mortgages for the whole building, or on separate residential and commercial refinances where the titles are split. A building at least 18 metres high or with at least seven storeys that contains at least two residential units is a higher-risk building under the Building Safety Act 2022, and building control approval from the Building Safety Regulator then applies to the programme.

Pre-let, forward-funded and forward-sold schemes

A pre-let scheme has an occupier committed under an agreement for lease before or during construction. The lender lends against the investment value the lease creates, reviews the agreement's conditions (practical completion deadlines, specification, rent-free periods, break clauses) and often takes an assignment of it. In a forward-funded scheme an institutional investor buys the scheme at the outset, funds the build and takes the completed asset; the developer earns a profit, and the development finance need falls away or shrinks to a land or working-capital facility. A forward-sold scheme is contracted for sale at practical completion at an agreed price, so the lender lends against a contracted exit rather than a valuer's opinion. A pre-let raises the reported gross development value, and with it the achievable loan, because the valuer capitalises secured rent at a keener yield; the achievable leverage, as a percentage of GDV, stays at the lender's ceiling.

Speculative commercial development finance

A speculative scheme is built without a committed occupier or purchaser, on the strength of the letting market. Fewer lenders fund speculative commercial development, and appetite varies by sector and location. In our experience they apply the same LTGDV percentage as on a pre-let scheme, but on valuations that use softer yields and letting-void and rent-free assumptions, and they look harder at profit on cost, because the margin is the only buffer if letting takes longer than the appraisal assumes. A letting agent's demand report, comparable lettings and a marketing strategy are part of the package.

Owner-occupier commercial development finance

A business building or converting its own premises is underwritten on two things at once: the asset, valued on a vacant-possession and investment basis, and the business, on its accounts and the debt service coverage ratio the exit lender requires, because the exit is an owner-occupier commercial mortgage serviced from trading. Where the trading covenant is strong, owner-occupier schemes can reach the commercial ceilings, and the commercial mortgage guide sets out the exit lending position.

Commercial-to-residential conversions

Converting offices, shops, agricultural buildings or hotels to homes, under full planning or permitted development with prior approval, is a residential scheme with a residential exit, so it is funded on the residential ceilings (on the cases we arrange, up to 75% LTGDV and 90% LTC) rather than the commercial ones. Change of use delivered 17,710 homes in England in 2024 to 2025 (MHCLG). The conversion route is covered on the property development finance hub and investing in new builds and conversions.

HMO-led schemes sit between the two: some lenders treat them as commercial, and on the cases we arrange they run up to 75% LTGDV.

The documents we ask for first depend on the scheme: the letting evidence and the specification for an office; the site plan and the environmental search for an industrial scheme; the anchor pre-let or heads of terms for retail or leisure; the operator's business plan and the management or franchise agreement for a hotel; the practice or operator agreement for healthcare; the operator platform and any nomination agreement for student or later-living schemes; the unit schedule and the intended title structure for mixed use; the letting agent's demand evidence for a speculative scheme; the business accounts and the premises plan for an owner-occupier; and the prior approval decision for a conversion to residential. On a pre-let, forward-funded or forward-sold scheme, talk to us before a lender is approached, so the exit contract can be structured first.

How commercial development finance is arranged

1. We appraise the scheme against both caps with the exit defined (an agreement for lease, a forward-sale contract, a letting agent's demand report or owner-occupier accounts) and place it indicatively with lenders whose appetite matches the asset class and structure.
2. The lender instructs a development valuation on investment, vacant-possession and current-site bases, and the monitoring surveyor's cost and programme review. Its solicitors review the title, the planning conditions, CIL and Section 106 liabilities, the building contract and any agreement for lease, and the security is documented: a debenture, collateral warranties and any guarantees the lender requires.
3. The site or purchase advance is released, then build costs are drawn in arrears against the monitoring surveyor's monthly certificates, with interest rolled up within the facility.
4. At practical completion the lease or the forward sale completes and the asset is refinanced onto a commercial mortgage or sold, or a development exit loan takes over where letting runs beyond the term.

How the lease sets the facility

A commercial building's value is its rent divided by a yield, so whether a lease exists, how long it runs and the strength of the tenant's covenant all move the GDV, and the GDV moves the facility.

Step 1. GDV is an investment valuation

A commercial building's gross development value is the sustainable rent the finished asset will earn, capitalised at the yield investors in that sector and location currently accept, net of purchaser's costs. The valuer's multiplier is 100 divided by the yield: a 7% yield gives 14.29 times the rent, an 8% yield 12.5 times. The same rent therefore produces a materially different GDV depending on how secure the valuer believes it is, and a pre-let makes it more secure.

Step 2. The same scheme, pre-let and speculative

Two illustrative versions of one scheme, each with £100,000 a year of rent and £1,100,000 of total cost, are compared in the table below.

Illustrative arithmetic on hypothetical figures, using a 70% LTGDV and 90% LTC ceiling; the yields are chosen to show the mechanism and do not represent any market. Not an offer of finance.

The pre-let version is funded to the loan-to-cost ceiling with a margin to spare. The speculative version of the same building has a lower GDV because the valuer prices the letting risk into the yield, so at the same 70% ceiling the LTGDV cap binds, the developer's equity roughly doubles from £110,000 to £225,000, and the profit on cost falls to 13.6%, below the 15% to 20% lenders commonly require. The scheme is then declined or needs a heavier equity contribution. At the 65% LTGDV that pure commercial schemes more often achieve on the cases we arrange, the speculative facility falls to £812,500 and the developer's equity rises to £287,500.

Step 3. What the lender reads in the lease

Where a pre-let exists, the lender's solicitors review the agreement for lease as security: the conditions to completion (specification, practical completion long-stop dates, the occupier's right to walk away), the lease term and any break clauses, rent-free periods and stepped rents that reduce day-one income, the repairing obligation (a full repairing and insuring lease supports value) and the tenant covenant, where audited accounts support a keener yield than a new company's. A heavily conditional pre-let is valued closer to speculative than to let.

Step 4. The exit test underneath the GDV

Behind the value sits the refinance. At practical completion the completed asset must support a commercial investment mortgage on its rent, at the exit lender's own rental coverage test, an owner-occupier mortgage on the business's debt service coverage, or a sale at the valuer's GDV. Lenders test whether the exit can repay the development facility including rolled-up interest; where it cannot, the development leverage is reduced until it can. The exit lending mechanics, including the investment valuation the refinance lender will instruct (some lenders call it an MV1 valuation, though lenders label valuation bases differently), are in the commercial mortgage guide.

Step 5. Planning, levies and compliance inside the cost plan

Consent for the intended use class is the starting condition. The Planning Portal's use classes guidance sets out the classes: in England, Class E covers most commercial, business and service uses, and B2, B8, C1 and C2 cover general industrial, storage, hotels and residential institutions. Where the council charges the Community Infrastructure Levy, it is a cost in the appraisal, as are Section 106 obligations, payable on commencement or phased, and pre-commencement conditions must be discharged before the lender releases build funds. Energy performance is an exit cost as well as a build cost: let commercial property must meet the Minimum Energy Efficiency Standard (gov.uk: Commercial property EPCs), and valuers and exit lenders may weigh the risk of that standard rising.

What decides the case

The asset is fixed by the site and the planning, and the developer controls four things: the exit structure (pre-let, forward sale, forward funding or speculative), the strength and terms of the letting evidence, the cost plan's contingency against rising output prices, and the choice of a lender whose appetite fits the asset class. Settle those four before the valuation is instructed, so the valuer and the lender assess the scheme on the full evidence.

Related reading: the property development finance hub covers the tier structures, drawdown mechanics and calculator; the commercial mortgage guide covers the term lending the scheme exits onto.