Commercial Property Market Shows Resilience Amid Budget Uncertainty
Leasing and investment demand for commercial real estate maintained impressive strength during the final months of 2025, demonstrating remarkable resilience despite the Budget uncertainty that unsettled the residential housing market. While speculation surrounding potential tax changes slightly tempered growth in some areas, year-on-year figures across most commercial sectors remained robust and encouraging for industry observers.
Office and Industrial Sectors Lead Growth
According to Rightmove's latest property index, office space investment demand reported a solid four per cent year-on-year increase, while industrial demand experienced a significant twelve per cent jump. These figures highlight how commercial property continues to attract investor confidence even during periods of political and economic uncertainty.
Leasing demand within the commercial sector also remained elevated, with industrial demand rocketing eleven per cent year-on-year. Office and leisure spaces showed more modest growth, rising two per cent and one per cent respectively, while retail leasing experienced a four per cent decline. The leisure sector suffered a seven per cent drop in investment demand, with analysts predicting "muted" demand in the period leading up to the Budget announcement.
Industry Leaders Remain Optimistic
Andy Miles, managing director of commercial at Rightmove, commented: "It seems that uncertainty in the run up to the Budget suppressed demand in some areas, but it's positive that it mostly continued to grow year-on-year. Some business leaders understandably delay their decision making when potentially large financial changes are just around the corner."
Miles noted that the continued demand for commercial properties represented "a positive sign for the year ahead", while the ongoing fall in interest rates would further enhance the attractiveness of commercial property investment. This sentiment reflects broader industry confidence despite the challenging economic landscape.
London's Commercial Market Experiences Significant Decline
Demand for commercial spaces plunged in the capital, dropping by more than the national average, as the combined effects of hybrid working adoption and high inflation prompted numerous businesses to vacate office spaces, ultimately shrinking supply across London's commercial property market.
Leasing office interest suffered a nine per cent year-on-year decline, with the City of London experiencing a particularly dramatic twenty-four per cent drop. Kensington and Chelsea witnessed an even more severe forty-four per cent plummet in demand, as this prestigious borough continues to struggle against high prices, with property values also decreasing sixteen point three per cent to an average of £1.19 million in November.
Meanwhile, retail leasing declined sixteen per cent and industrial demand fell three per cent in London, though retail investment interest remained unchanged, suggesting some stability in that particular segment of the capital's commercial market.
Northern Regions Experience Commercial Property Boom
In striking contrast to London's decline, Northern demand for commercial properties surged dramatically, as business owners and investors scrambled to secure properties in more affordable regions with growing economic potential.
Yorkshire and Humber reported the greatest appetite for industrial properties, with a twenty-four per cent rise that reflects its established status as a manufacturing hub as well as significantly lower property prices compared to Southern regions. Scotland experienced an impressive thirty-two per cent increase in leisure property leasing, while the West Midlands recorded the highest demand for retail spaces, though this remained the most subdued sector with just a seven per cent rise in interest.
Expert Analysis Points to Continued Strength
Darren Bond, Global Managing Director at Christie and Co, offered his perspective: "We are optimistic about the market outlook for our specialist sectors. The visibility and pipeline of transactions anticipated to happen in the first half of the year are encouraging when compared with the same period a year ago."
Bond acknowledged that "cost pressures will continue to put a strain on businesses, and the economic environment will be more challenging in the year ahead", but concluded: "As long as demand remains at the current level, with bank funding readily available, then we see no reason why market sentiment shouldn't be maintained and even surpass the levels seen in 2025."
The commercial property market's performance demonstrates how different regions and sectors respond uniquely to economic pressures, with industrial and office spaces showing particular resilience while leisure and retail face greater challenges. This regional divergence between London's decline and Northern growth highlights shifting economic patterns across the United Kingdom's commercial landscape.
