The UK’s commercial property market experienced a slowdown in the final quarter of 2024, with demand stagnating across most sectors, according to the latest Royal Institution of Chartered Surveyors (RICS) UK Commercial Property Monitor. However, despite short-term challenges, long-term investor confidence remains intact, particularly in high-quality office and industrial properties. Ives & Co, leading solicitors serving Nottingham and Kent, can assist with commercial property.
Market Performance in Q4
RICS data revealed that overall tenant demand remained flat in Q4, registering a net balance of 0%, down from +5% in the previous quarter. While retail properties saw a decline in demand, office and industrial spaces continued to attract interest, albeit at weaker levels than earlier in the year.
Industrial property performed best, with a net demand balance of +7%, while prime office space saw a modest increase of +3%. This reflects a growing preference for modern, energy-efficient spaces, as businesses seek high-quality environments to attract employees back to the office.
The Growing Divide Between Prime and Secondary Properties
A key trend highlighted in the RICS report is the widening gap between prime and secondary properties. High-quality, energy-efficient commercial spaces continue to perform well, with rental expectations remaining strong.
- Prime industrial rents are forecasted to rise by 55%.
- Prime office rents are expected to increase by 40%.
- Secondary office spaces in London saw a sharp decline, with a net balance of -45%, reflecting ongoing weakness in older buildings that lack modern energy efficiency features.
The rising cost of energy and growing corporate focus on sustainable workspaces are driving this divide. Companies are prioritising well-equipped, modern offices to boost productivity and encourage staff to return to in-person work, while outdated commercial spaces struggle to attract tenants.
Investment and Capital Value Trends
Capital value expectations weakened in Q4, likely due to uncertainty in bond markets and investor caution. Investment demand remained subdued in the office (-11%) and retail (-13%) sectors, while industrial property continued to perform relatively well, with a net investment enquiry balance of +8%.
Long-Term Confidence Holds Firm
Despite the slowdown, 44% of RICS respondents still view the market as being in an early upturn phase, while a smaller 4% believe it has moved into a mid-upturn stage.
While short-term concerns persist, the long-term outlook for prime commercial property remains strong, particularly in the industrial and high-quality office sectors. As businesses continue to adapt to post-pandemic working patterns and sustainability goals, demand for modern commercial spaces is expected to remain robust in the coming years.
