But rising insurance costs and Trump tariffs fuel uncertainty
Certain sectors of the commercial property market are beginning to show signs of recovery, according to a new report from the Royal Institution of Chartered Surveyors (RICS), though overall sentiment remains cautious.
Data from the first quarter of 2025 shows that tenant demand across all commercial property types remains largely unchanged, with a net balance of +1%. While demand for industrial (+9%) and office space (+6%) increased slightly, retail continues to lag behind, recording a net balance of -13%.
Survey responses highlighted the rising costs faced by tenants, particularly due to the increase in National Insurance contributions. In addition, uncertainty stemming from US trade policies — especially recent tariff measures — was cited as a concern for market participants.
Prime industrial and office properties are projected to see moderate rental growth over the next year, with expectations of 2.2% and 2.1%, respectively. Conversely, rents in secondary retail and office markets are expected to decline by 3.2% and 2.6%.
Alternative property types, including data centres (+4%), multifamily housing (+2.7%), life sciences facilities (+2.4%) and aged care homes (+2.2%), are forecast to outperform.
Investment enquiries across the board showed marginal improvement, with the net balance increasing to +4% from -4% in the previous quarter. The industrial sector was the strongest performer, with investment interest climbing to +18%.
The latest RICS Commercial Property Monitor also forecasts a modest appreciation in the value of prime industrial and office properties — close to 2% over the next 12 months. Meanwhile, secondary assets in both categories are likely to see declines of around 2.5%. Again, alternative sectors are expected to lead in capital value growth, particularly data centres and build-to-rent housing.
In Central London, prime offices are forecast to deliver the highest rental gains, nearing a 5% increase. Northern Ireland and Scotland are predicted to lead in industrial rental growth, while optimism in retail rents is more concentrated in Scotland and the North East of England.
“Despite the turbulence engulfing the geo-political environment following US President Donald Trump’s tariff announcement at the start of April, feedback to the latest RICS was steady with the headline investment enquiries metric returning to positive territory, albeit modestly, for the first time since the second quarter of 2022,” said Simon Rubinsohn (pictured), RICS chief economist.
“Longer term indicators, while generally constructive, continue to reflect the likely headwinds facing the real estate market over the next 12 months. Aside from the challenges linked to the global economy, concerns around domestic issues including the impact of the uplift in NI contributions are seen as likely weighing on occupier demand.
“Meanwhile, the bifurcation in the office sector remains very visible in the latest results with the outlook for prime space seemingly improving as sentiment around secondary offices remains deeply negative.”
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