Demand for prime office and industrial space remains strong while secondary properties struggle
The UK’s commercial property market showed signs of slowing in the fourth quarter of 2024, though long-term confidence remains intact, according to the latest Royal Institution of Chartered Surveyors (RICS) UK Commercial Property Monitor.
While overall tenant demand stagnated, prime office and industrial properties continued to attract interest, reinforcing their resilience in an evolving market.
RICS data revealed that 44% of survey respondents still view the market as being in an early upturn phase, while 4% believe it has moved into a mid-upturn stage.
Overall tenant demand remained flat in Q4, registering a net balance of 0%, down from +5% in Q3. Sector-specific trends showed that retail properties saw a decline in demand, while both industrial (+7%) and office space (+3%) remained positive — albeit at weaker levels than the previous quarter.
Demand continues to favour high-quality, energy-efficient commercial spaces, while secondary properties struggle to attract interest. This trend is evident in rental expectations, with prime industrial rents (+55%) and prime office rents (+40%) forecasted to rise. In contrast, secondary office space in London saw a net balance of -45%, reflecting continued weakness in older, less energy-efficient buildings.
According to the RICS report, the growing gap between prime and secondary properties is being driven by rising energy costs and companies prioritising high-quality workspaces to encourage employees back to the office. Analysts expect this preference for modern, well-equipped office environments to persist.
Capital value expectations weakened in Q4, likely due to uncertainty in the bond markets. Investment enquiries remained subdued in office (-11%) and retail (-13%) sectors, while industrial property maintained a positive reading at +8%.
Despite short-term concerns, industry confidence in prime commercial property remains strong.
“The closing quarter of 2024 saw sentiment in the UK Commercial Property market soften a little, with bond market uncertainty impacting credit conditions and investment,” said Tarrant Parsons (pictured), RICS head of market analytics. “This has not, however, soured long-term confidence in the market. Prime industrial and office assets continue to demonstrate resilience, and the gap between modern, energy-efficient commercial property and the rest expanded again.
“According to some of our respondents, rising rents are enabling developers to refit and improve their properties in what is a competitive prime market. Many are employing a ‘wait and see’ attitude towards the commercial property sector and the impact of the government’s policy package, reflected in a flatter outlook this past quarter.”
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