Major UK lenders like HSBC and Nationwide have raised their fixed-rate mortgage prices in light of the war which has broken out in the Middle East. This is tied to concerns that the Middle East conflict would push up energy prices and thus inflation, delaying expected Bank of England interest rate cuts.

Mortgage brokers report that the market mood has been impacted by the war, with clients rushing to lock in deals before further rate increases, and many clients switching from tracker mortgages to fixed-rate mortgages to avoid volatility.

Rising interest rates triggered by geopolitical shocks extend beyond just residential mortgages, also affecting the commercial property markets upon which multinational corporations rely when making long-term real estate decisions. Retailers, logistics companies, manufacturers and technology companies would all typically lease rather than own commercial property, which means these corporate organisations would have their tenant negotiations and corporate real estate strategy impacted.

But at the same time, commercial property valuations move inversely to interest rates as the cost in maintaining the property is higher when rates are higher. This means property developers and commercial landlords holding properties like warehouses, office blocks and retail units will see a fall in the value of these assets.

What does this mean for the commercial property market?

• Commercial landlords will face refinancing pressures as rising rates reduce asset valuations and trigger loan covenant breaches, perhaps forcing distressed sales

• Corporate tenants gain negotiating leverage with distressed landlords but face uncertainty with regards to the solvency of said landlords.

• Retailers and logistics operators will have to rationalise the cost of property portfolios amidst rising energy and rent costs, especially when consumer spending is dampened by mortgage rate rises