But investors stay cautious as recovery remains London-led
Tenant demand across the UK commercial property market improved in the second quarter of 2026, though the recovery is heavily concentrated in London, according to the Royal Institution of Chartered Surveyors (RICS) UK Commercial Property Monitor.
The occupier demand indicator rose to a net balance of -5%, its least negative reading since Q2 2025. Industrial demand returned to positive territory at +3%, while office demand held at -4% and retail remained the weakest segment, edging up slightly to -16%.
London continued to outperform regional markets. Prime office rental growth expectations in the capital reached a net balance of +67%, with prime retail at +28%. Industrial rental sentiment was strongest in the Midlands and the North of England, though regional markets broadly remained subdued.
"The UK commercial property market appears to have weathered the initial shock from the escalation in geopolitical tensions earlier in the year reasonably well, with the tone from respondents this quarter noticeably more settled than in Q1," said Tarrant Parsons (pictured right), head of market research and analytics at RICS.
"Occupier fundamentals continue to hold up, and there is tentative evidence that the sharp tightening in credit conditions seen earlier in the year is starting to unwind. That said, the pace of the recovery in investor sentiment remains modest, and respondents continue to flag caution given the wider macroeconomic backdrop."
Nationally, prime office rental expectations strengthened from +39% to +51% over the next 12 months — the highest post-pandemic reading for the sector. Prime industrial rental expectations also rose to +45%, while secondary industrial rents moved into positive territory at +12%.
The gap between prime and secondary assets widened. Respondents forecast falling rents for secondary retail and office space, with net balances of -34% and -26% respectively. Vacant space increased during the quarter, with an all-sector availability balance of +20%, and landlords continued to offer substantial incentives to attract occupiers in the office and retail segments.
Data centres continued to benefit from AI-driven demand, with rental and capital value expectations exceeding net balances of +65%. Multifamily residential rents recorded a balance of +51%, while hotels and life sciences were expected to produce more modest gains. Leisure remained the most challenged alternative sector, with respondents forecasting declines in both rents and capital values.
Investment conditions lagged behind the occupier market. The investment enquiries indicator improved marginally from -11% to -8%, while overseas investor demand remained negative for a fourth consecutive quarter. Industrial assets were the strongest mainstream investment category, with demand rising to +4%.
Twelve-month capital value expectations stayed positive for prime offices and prime industrial assets, both recording net balances of +29%, though these figures fell short of end-2025 levels as geopolitical tensions, elevated risk-free rates and cautious lending conditions weighed on confidence.
Respondents were almost evenly split on where the market sits in the property cycle, with no consensus between those who believe a downturn continues, those who consider the market to be at the bottom, and those who see signs of an emerging upturn.
"As we move through the second half of the year, the trajectory of interest rates, alongside developments on the international stage, will remain critical to whether or not positive momentum is allowed to build," Parsons said.
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