Leasing and investment demand stay positive amid business rates reform and slower growth
Demand for UK commercial property leasing and investment stayed broadly positive in the final quarter of 2025, despite a period of heightened uncertainty around November’s Budget, according to Rightmove’s latest Commercial Insights Tracker.
The pace of growth was weaker than in both the previous quarter and in late 2024, but the report links part of this slowdown to the timing of the Labour government’s second Budget, held unusually late on Nov. 26, and the extended speculation over tax changes in the run-up to it.
In the months before the statement, many businesses were reported to be reassessing their plans amid talk of significant amendments to the tax regime, encouraging some decision-makers to defer commitments on property.
“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,” said Andy Miles (pictured right), commercial managing director at Rightmove. “Some business leaders understandably delay their decision making when potentially large financial changes are just around the corner.”
Rightmove’s figures suggest activity in the closing months of 2025 remained relatively solid given the policy backdrop. For lenders active in commercial real estate, the data points to a market that has paused in some segments rather than reversed, with pricing and demand still supported in core sectors.
“There are positive signs ahead for the rest of 2026,” Miles said. “Not only is demand largely higher than last year, but we are expecting to see further interest rate cuts starting later this year, which would help to make commercial property investment more attractive and viable to some investors.
“It’s still a difficult cost climate for many businesses, but stable demand to lease commercial space and interest rate reductions for investors would help to create some momentum for the 2026 market.”
For Michael Sears, commercial advisory panel member at industry body Propertymark, it is positive to see previous planning and innovation now starting to bear fruit with enhanced demand and continued interest in long-term investment.
“Like all sections of society, any fiscal uncertainty can bring a degree of apprehension regarding investment sentiment until full details are clear-cut,” Sears said. “Despite challenges within the wider economy, the commercial sector delivered robust numbers and opportunities for growth throughout last year and is well-positioned for success heading further into 2026.
“We are witnessing many town and city centres transform themselves to better serve communities and modern-day needs, as well as a rejuvenated demand within the office sector to keep pace with modern hybrid practises, specifically the need for cutting-edge workspace, which delivers better provisions for future technology needs, energy efficiency requirements, and stronger public transport links for employees.”
From April 2026, the Budget will introduce a substantial overhaul of business rates, with a new five-band multiplier. The reforms draw a clearer line between retail, hospitality and leisure properties and the rest of the commercial stock, and create an additional tier for higher-value premises. For mortgage and debt providers, these changes may alter operating cost profiles and underwriting assumptions across different asset classes.
On the occupier side, industrial property showed the strongest growth in leasing demand, up 11% year on year. Offices recorded a 2% rise, while leisure demand edged up 1%. Retail bucked the trend, with a 4% annual fall in leasing interest.
Investment demand told a similar story. Industrial assets led with a 12% increase, followed by offices at 4% and retail at 3%. Appetite for leisure investments declined by 7%. These shifts are likely to feed through into loan origination volumes, with lenders exposed more heavily to industrial and stronger retail locations potentially seeing firmer pipelines than those focused on discretionary leisure assets.
At the same time, availability increased across all sectors for leasing and for all but leisure on the investment side. In the context of softer or moderating demand, a modest rise in stock on the market is in line with expectations and may provide more choice for both occupiers and investors negotiating finance.
The report also highlights sharper falls in leasing demand for offices in some of London’s core business districts than in the country overall. This suggests a more cautious stance among occupiers in the capital at the end of 2025, alongside potential constraints in prime-grade supply.
Demand to lease office space in the City of London was down 24% compared with the same period a year earlier, while Westminster saw an 8% decline. For lenders with significant exposure to central London offices, these moves may warrant closer scrutiny of vacancy, incentives and refinance risk, particularly where business rates changes add further cost pressure.
For commercial mortgage professionals, the combination of steady – if slower – demand, anticipated rate cuts and an evolving business rates landscape suggests a market where risk is shifting by sector and region rather than uniformly. Industrial and selected office assets continue to attract capital, while retail and leisure require more granular due diligence on trading performance, covenant strength and the impact of higher occupancy costs.
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