‘Macro pressures contribute to weakening investor and tenant demand at the headline level’ – this is the headline from the latest RICS Commercial Market Report for Q3 2025.
- Occupier demand reportedly softens across all sectors at the national level, although feedback is a little more resilient in London.
- Investment enquiries decline, driven by falls across the office and retail sectors.
- Prime commercial real estate still generally expected to post moderate capital value and rental growth over the year ahead, although projections have been trimmed.
During Q3 2025, a total of £9.8bn was traded in the UK commercial property investment market. But, this was only down 2% from the previous quarter. Offices, Industrial and Retail were all down from the previous quarter, with only the ‘Alternatives’ sector (PBSA, BTR and Hotels) showing an improvement.
There is a large amount of uncertainty/concern/boredom around the upcoming Autumn Budget, and if any investors ever needed an excuse to ‘sit tight’ (and do nothing) then now is the time. The press should have definitely laid on sugary cakes for the chancellor on the 4th November, who now appears to be an elephant in the room.
Back to back with the upcoming Autumn Budget is the start of Christmas season, but it doesn’t feel that there is an abundance of yuletide glee across the workplace right now.
The UK economy remains in a fragile recovery phase. Growth has slowed, inflationary pressures persist, and debt servicing costs remain high. For the commercial real estate market, this means uncertainty around tax policy, business rates, and investment incentives. All at a time when occupier costs are increasing, transaction volumes are subdued and investor confidence remains sensitive to policy change.
We need to see a base rate cut on the 18th December as an early Christmas gift, to give a glimmer of hope for positive investor sentiment, followed by another cut in the New Year dropping the base rate down to 3.50% to start 2026.
IPF Research in September (Summer 2025 Survey of Independent Forecasts for UK Commercial Property Investment) forecasted that UK commercial property total returns had been downgraded from 8.2% to 7.4%. The returns forecast up to 2029 were boosted by more robust capital growth predictions, as follows:
- Rental value growth: 7% pa
- Capital value growth: 9% pa
- Total return: 9% pa
The trade off between capital value and total return levels against base rates needs to have enough arbitrage to give investors more conviction in the market.
There are reasons to be cheerful however, with the industrial market in the North West heading in to what should be a strong finish to Q4 with some Big Box leasing activity completing. There is a lack of development pipeline which could in turn lead to sustained rental levels being achieved, with the likes of Arrow Point in Bolton under offer in excess of £11.00 per sq ft for Big Box space.
Take up of office space in Manchester City Centre dropped in Q3 and overall take up levels are so far down on 2024 figures. The fringe market of Salford Quays, South Manchester and Old Trafford have so far had a good 2025 with figures already ahead of 2024 with a further quarter to go. That said, record rents are set to be achieved in the City Centre in Q4 which will provide more confidence to both incoming investors and existing landlords going in to 2026 and who are undertaking asset management strategy work on existing assets.
It does feel that transactions are being drip fed through quarter by quarter and we appear to have moved away from a typical 12 to 16 week transaction timeline, up to as long as 24 weeks. This lag can always distort take up figures and transaction volume data.
There are additional items that investors are monitoring closely, with the Renters Reform Bill (residential) and the potential abolition of upward only rent reviews across the commercial market.
The former is already being factored into decision making and pricing as some yields have softened in the residential sector, although the latter abolition of upward only rent reviews is still lesser known and ultimately there are multiple options available to deal with this possible legislation, such as fixed increases over a lease term, shorter leases, indexation linked reviews etc.
Despite the headwinds/headlines there remains rental growth evidence in some sectors and institutional demand remains in almost all sectors for the best in class and value add opportunities for other mixed investors. Long income opportunities remain attractive whilst yields appear to be coming back in.
At Wildbrook, we continue to push ahead with completions before the year end and have been reporting on possible new sales for Q1/Q2 2026. To date, we have advised clients on the sale or purchase of in excess of 330,000 sq ft with a further accumulation of assets that will take this to over 500,000 sq ft before the year end.
It has so far been a tough and challenging year but we remain positive and are controlling the controllables, as we continue to select the best opportunities for our clients.
Plenty still on and more to do. Here is to the remainder of Q4.
