76% of Surveyed Commercial Landlords Report Rising Vacancies. Can the Rent Still Support the Debt?

More than three-quarters of commercial property owners in a commissioned survey reported an increase in vacancies. The findings, covered on 9 October, raise a practical question for landlords approaching a mortgage maturity: can the rent still support the debt they need to refinance?

A portfolio can look reassuring on a balance sheet. There may be several buildings, considerable equity and no immediate intention to sell. Yet if tenants leave, the cash available for mortgage payments can change much faster than the owner’s perception of the assets’ value.

Some costs continue while units stand empty. New tenants may need incentives or alterations before occupation. A lease signed today may not produce a full rental payment tomorrow.

That is where a vacancy problem becomes a financing problem. The assessment needs to examine the income arriving now, the cash required during reletting and the debt that must be repaid or renewed.

What the Survey Actually Found

SafeSite Facilities commissioned Censuswide to survey 350 UK commercial property owners aged 25 and over with some responsibility for security decisions. Fieldwork took place on 13–21 May 2026, so the October coverage should not be treated as an October measurement.

For an individual landlord, the financing decision rests on their own leases, receipts, costs and security. The survey provides a reason to examine those figures.

A £5m Portfolio Can Still Have an Income Problem

Consider a hypothetical commercial portfolio valued at £5m, financed with £3m of debt. At that valuation, the loan-to-value is 60%. The owner might reasonably expect substantial equity to provide room for a refinance.

Assume annual rent at full occupancy is £300,000, with £60,000 of operating costs. Net operating income before finance is therefore £240,000.

At an illustrative 6% annual interest rate on a constant £3m balance, an interest-only loan costs £180,000 a year. That leaves £60,000 after the modelled operating costs and interest, before tax, capital expenditure and other commitments.

Now assume rent falls by 20%, while those operating costs remain unchanged. Rent becomes £240,000 and net operating income falls to £180,000. It covers the interest exactly, leaving no surplus on this simplified basis.

The owner still has the buildings. The original valuation still shows £2m of equity. But the income cushion has disappeared.

Lost Rent Can Erode Coverage Faster Than Occupancy Falls

The following illustration assumes units contribute equally to rent, occupied tenants pay in full and operating costs remain fixed. Actual portfolios are more complicated: one large tenant can contribute far more than several smaller occupiers, and some costs change with vacancy.

Here, a 10% reduction in rent halves the modelled cash remaining after interest. A 20% reduction removes it entirely.

The table also illustrates why occupancy alone is insufficient. A fully occupied building with rent arrears can generate less cash than its lease schedule suggests. A newly signed tenant with a rent-free period may improve the future position without resolving today’s shortfall.

The debt review needs the cash profile, including incentives, collection history and the timing of payments.

The Refinance Can Be Constrained by Both Income and Value

A lender assesses whether the security and the repayment capacity support the proposed facility. Passing one test does not automatically settle the other.

Income assessment methods differ. Allica Bank’s published commercial investment guide, for example, specifies debt-service coverage requirements and distinguishes fixed-rate assessment from variable-rate stress testing. The details are lender-specific; an owner’s own cash-flow calculation is not a lending decision.

Valuation introduces another constraint. Vacancy, lease terms, local demand, condition and reletting prospects can affect the valuer’s assessment. A previous fully let valuation should not simply be carried into a new application.

If the hypothetical portfolio is now valued at £4.2m, £3m of debt represents approximately 71.4% loan-to-value. Under a purely illustrative 65% lending cap, the value-based maximum would be £2.73m, leaving a £270,000 gap before fees. Income assessment could restrict the amount further.

The owner may therefore need to reduce debt, contribute equity, change the facility structure or reconsider the asset plan. Establishing the gap early gives those choices time to develop.

A Temporary Void Needs a Different Response From a Persistent Shortfall

A unit awaiting completion of an agreed lease presents a different case from an office that has attracted little interest for a year. Both may currently produce no rent, but their prospects and funding requirements differ.

A short-term gap may require cash for incentives, fit-out or carrying costs until rent starts. A persistent vacancy may require a more fundamental decision about pricing, refurbishment, use or disposal.

The letting agent’s evidence matters: competing supply, enquiries, offers, realistic rent and the likely time to occupation. Borrowing should be assessed against that evidence rather than an assumption that last year’s rent will return.

Where a proposed change of use or substantial refurbishment is involved, the costs, permissions and timetable need a separate appraisal. Expected future rent cannot pay this month’s interest while those steps remain incomplete.

Interest-Only Borrowing Can Change Payments, but the Capital Still Falls Due

Moving from repayment to interest-only may reduce scheduled payments where a lender permits it. That can be useful when supported by the client’s objectives and a credible capital repayment plan.

It does not create rental income. If a portfolio already fails to cover interest, removing capital repayments cannot eliminate the operating shortfall.

A longer term or different pricing may also change the cash profile. The review should show the effect on total cost, maturity and repayment obligations, rather than considering the monthly payment in isolation.

Where the underlying income is structurally insufficient, adding more leverage can increase the eventual problem. Equity investment or asset sales may need consideration alongside refinancing, with appropriate professional advice.

Short-Term Finance Needs an Exit Supported by Evidence

Bridging or specialist short-term lending may be relevant for an acceptable vacant asset where there is a defined letting, refurbishment or disposal plan. The security, borrower resources and exit determine whether the facility is viable.

Retained or rolled-up interest can reduce immediate monthly cash demands, but the interest still has to be funded and repaid. Fees and interest may also reduce the net proceeds available at drawdown.

If the exit is a commercial mortgage after reletting, the expected lease and rental income need to support that mortgage. If the exit is a sale, the price and timetable need realistic evidence and room for delay.

Lease Events Can Reveal the Next Funding Gap

Today’s collected rent is the starting point. Lease expiries, tenant breaks and concentrated income can show where the next pressure may arise.

A portfolio may have high occupancy but depend heavily on one tenant approaching a break date. Another may have diversified income but several leases expiring close together. The borrowing review should recognise both patterns.

A useful stress test can model delayed reletting, lower achieved rent, a rent-free period and a higher debt cost at renewal. It should also show the cash reserves needed through the transition.

Empty-property costs deserve their own line. Security, insurance, maintenance and any rates liability depend on the property and applicable arrangements. Confirm those costs rather than assuming every expense stops with the rent.

Speak to the Existing Lender Before the Deadline Becomes Urgent

Facility documents may include income, valuation or other covenants, as well as reporting requirements. Their definitions matter: the simple coverage calculation in this article does not establish whether a particular loan is compliant.

If performance has deteriorated, establish the contractual position with the appropriate advisers and discuss it with the lender early. Do not assume that an extension or amended repayment arrangement will be available.

Commercial managing agents, accountants and surveyors can help assemble the evidence. Where solvency or serious financial distress is involved, restructuring advice may be necessary alongside any finance assessment.

A refinancing application is strongest when it explains the current problem, the proposed response and the resources available to carry it through.

How Willow Private Finance Can Help

Willow can assess a commercial borrowing requirement using current rent receipts, operating costs, leases, vacancy details, valuation evidence and existing facility terms.

The comparison may include a commercial refinance, a suitable repayment structure, selective financing across assets or short-term funding for a defined transition. Projects involving material works may also require a development or refurbishment finance assessment.

We can coordinate the borrowing review with the client’s managing agent, accountant and other advisers. Their input helps distinguish a fundable temporary gap from a position requiring a broader commercial decision.

The practical starting point is the rent arriving now and the debt falling due next. Understanding both gives a commercial landlord a clearer basis for deciding whether to refinance, invest more capital, reposition or sell.