Understanding the Commercial Real Estate Landscape in 2025

The commercial real estate sector is undergoing transformation, shaped by economic shifts, evolving tenant expectations, the increasing importance of technology and more. To gain a clearer picture of market trends, investment priorities, and operational challenges, this report presents key findings from a survey of commercial property owners, managers, and investors across the UK.

This survey represents a diverse cross-section of the UK CRE industry, capturing insights from seasoned professionals with extensive portfolios to newer investors entering the market. The findings shed light on market confidence, investment strategies, lease trends, and the adoption of technology and sustainability initiatives in 2025.

The sentiment toward the UK commercial real estate market in 2025 is largely optimistic, with 87% of respondents holding a neutral or positive outlook. However, 13% express concerns over financial pressures, regulatory shifts, and economic uncertainty.

91% of respondents remain at least somewhat confident about the long-term market outlook. This suggests a market that, while facing rising costs, financing pressures, and regulatory demands, retains a sense of resilience and measured optimism.

Key Opportunities in the UK Real Estate Market in 2025

The UK commercial real estate market in 2025 presents opportunities in industrial, repositioning of assets, secondary office growth, and yield-driven investments. Policy shifts, sustainability mandates, and technology adoption play a role in shaping strategies, while logistics, healthcare, data centres, and hybrid workspaces stand out as potential growth areas.

Industrial & Logistics Growth

• Light industrial and small to medium-sized units remain in high demand, with increasing interest from SMEs.
• Warehousing, roadside, and logistics spaces continue to attract strong interest.
• Older industrial stock face challenges, with modernisation required to attract tenants.

Office Market & Return to Work

• Employers advocating a return to the office stimulate demand, as well as a rising trend for niche, premium secondary spaces offering lower rents and operating costs than Grade A or prime offices.
• Flexible/hybrid workspaces are gaining traction, with increasing interest in co-working spaces.
• Central London offices remain a key investment area.

Retail & Mixed-Use Development

• Smaller retail sites and shopping centres present opportunities due to renewed business growth.
• Retail and office acquisitions offer good value in 2025, with some stabilisation in yields.
• Residential-commercial hybrids are an emerging asset class as urban demand shifts.
• Under-utilised assets will be repurposed for residential development.

Technology & Data in CRE

• Data-driven asset management is becoming more critical, improving efficiency and utilisation.
• Technology adoption in property management is enabling better decision-making.
• Growing demand for data centres and edge computing infrastructure as digitalisation expands.
  
  

“In the UK, the Knowledge Economy (defined in real estate as data centres, advanced manufacturing, energy & infrastructure and life sciences) is a driver for economic growth and new investment. The redistribution of real estate value will create new opportunities for real estate investors as part of the wider levelling up agenda.”

Property Perspectives 2025, JLL

Investment & Yield Opportunities

• Interest rate stabilisation (4.5%) is making high-yield investments like offices and retail more attractive.
• Distressed assets entering the market will create acquisition and repositioning opportunities.
• Falling interest rates and rising business confidence could increase CRE investment in 2025.

The biggest challenges landlords and investors face in 2025

The biggest challenges for landlords in 2025 include operating costs (24%), interest rates (20.2%), and regulatory changes (20%). Despite predicted interest rate cuts, many landlords still view rates as a significant hurdle, likely due to the lingering impact of previous rate hikes, high refinancing costs, and uncertainty over the pace of reductions. Vacancies (16.3%) and tenant retention (15.5%) are also key concerns, as landlords navigate changing occupier demand and lease structures in a shifting market

Those who adapt their strategies — whether through operational efficiencies, flexible lease models, or targeted investment decisions — will be best positioned to navigate 2025 successfully.

Top Asset Classes for Growth & Stability in 2025

This section focuses on the asset classes landlords and investors currently see as offering the best opportunities for growth or stability in their portfolio. As we move into 2025, the market is shaped by industrial and logistics demand, evolving office space requirements, shifts in retail dynamics, and increasing interest in alternative investments.

Industrial Warehousing & Logistics – A Dual Engine of Growth and Stability

Warehousing and logistics remain a strong asset class for growth and stability. Demand is driven by e-commerce, supply chain resilience, and last-mile delivery requirements. Investors continue to focus on:

• Warehouses and distribution centres to support logistics and fulfilment networks.
• Storage units and c. 5,000-10,000 sqft industrial units, catering to SMEs and growing urban supply chains.
• Big-box industrial spaces for major retailers and third-party logistics operators.
• Last-mile logistics facilities, particularly in urban areas where demand for rapid delivery is increasing.

Simultaneously, the broader industrial segment is showing strong growth, driven by trends across multi-let and specialist spaces. Key trends include:

• Multi-Let industrial estates, offering flexibility with diverse tenant mixes.
• Small-to-mid sized industrial spaces, attracting local businesses and SMEs.
• Repurposed and last-mile industrial locations, benefiting from urban demand and innovative use of high street assets.
• Growing demand for data centres and edge computing infrastructure as digitalisation expands.

Modernisation is essential. Outdated warehouses struggle to attract tenants unless they are upgraded to modern, energy-efficient standards. Similarly, industrial spaces in high-demand, low-supply locations remain highly competitive, while older stock requires refurbishment to remain viable.

As digitisation expands, demand is growing for digital-ready facilities like data centres and edge hubs, which complement traditional logistics spaces. An integrated approach creates a resilient market and positions industrial and warehousing assets as vital for a growth-focused portfolio.

Core Market Trends Causing Impacts on Tenant Demand

Economic conditions are the primary driver of tenant demand shifts, cited by 46% of respondents. Uncertainty is leading businesses to reassess space needs or delaying expansion. This trend is particularly affecting sectors, where tenants seek cost-effective, energy-efficient spaces.

Hybrid work models remain a key factor, noted by 26% of respondents. Although businesses are encouraging their workforce back to the office, the long-term adoption of hybrid work is reshaping traditional office demand, with tenants downsizing or choosing higher-quality, well-located spaces that support collaboration. This shift is boosting demand for flexible offices, co-working hubs, and secondary locations.

Sustainability requirements are influencing 9% of tenants, as ESG goals and energy regulations push demand for Net Zero-compliant buildings. Landlords can risk higher vacancies, particularly in industrial and logistics, where sustainability is now a competitive advantage.

Despite these changes, 16% of respondents reported no noticeable shifts, suggesting asset class stability in areas, meanwhile, 3% highlighted unique market challenges.

Factors Most Influencing Investment Decisions for 2025

The most significant factor influencing investment decisions in 2025 is tenant demand, cited by 32% of respondents. Investors are closely monitoring changing occupier needs, particularly in response to economic conditions, remote work shifts, and evolving industry requirements. Strong tenant demand in logistics and industrial sectors continues to drive investment, while office space remains a more complex asset class, requiring adaptation to hybrid work trends and flexible leasing models.

Although interest rates are declining, borrowing costs remain high compared to the historically low rates of the past decade. This environment continues to influence investment decisions, as access to capital remains a critical factor for 29% of respondents. Investors are focusing on stable, income-generating assets with creditworthy tenants to secure financing, reflecting caution due to the still relatively high cost of debt.

Market trends guide 24% of respondents, who are closely monitoring macroeconomic conditions, rental rate fluctuations, and sector-specific performance to inform their strategies. Regulatory changes, including stricter sustainability standards and planning regulations, are a concern for 13% of investors, prompting considerations of compliance costs and the long-term viability of assets.

Business Outlook

Primary Portfolio Goals for 2025

With most expecting stable or rising rents, landlords in strong asset classes may have pricing power. However, tenant retention, asset quality, and location-driven demand will be key to sustaining rental performance in 2025.

Maximising revenue growth is the top priority for 38% of respondents, driven by higher rental rates, value-add investments, and asset repositioning.

Portfolio expansion follows at 27%, with investors targeting industrial, logistics, prime office & retail spaces, and distressed or alternative assets for growth.

Operational efficiency is a priority for 18%, with landlords looking to cut costs, adopt digital tools, and improve energy efficiency.

Tenant retention remains key for 16%, as landlords focus on stable occupancy, flexible leases, and enhanced tenant experiences to reduce turnover.

Technology in Commercial Real Estate

83% of landlords cite that operational efficiency is the key focus in 2025, prioritising property management software to streamline workflows and reduce admin burdens. Risk mitigation follows, as investors turn to software to prevent costly errors and ensure compliance.

Core Technology Tools in Property Management Strategies

• Property management software is the most critical tool (30%), streamlining key event tracking, tenant communication, maintenance, and property reporting.
• Accounting software (25%) plays a key role in financial management and oversight, particularly when integrated via two-way data syncs with property management software.
• Excel & spreadsheets remain common (23%), though they tend to lack scalability and integration.
• Additional tenant communication tools further enhance tenant engagement, while data analytics tools support market insights and rental optimisation.
• AI & workflow automation and predictive maintenance tools are emerging, helping landlords automate tasks, reduce costs, and improve asset management.

Sustainability Upgrades and ESG Initiatives 

Sustainability Upgrade Plans for 2025

Investing in sustainability enhances asset value, attracts ESG-conscious tenants, and ensures compliance. Even minor upgrades can cut costs and improve long-term portfolio performance.

• The majority of respondents (66%) plan to make significant or minor sustainability upgrades to their portfolios in 2025. This suggests that many landlords and investors are taking incremental steps toward improving energy efficiency, reducing carbon footprints, and aligning with ESG expectations.
• 34% have no plans for upgrades, likely due to budget constraints or uncertain ROI, though future regulations may drive change.

ESG Initiatives in 2025

• 28% of landlords are prioritising energy-efficient systems, investing in smart energy solutions and insulation upgrades to cut costs and emissions.
• 23% are focusing on renewable energy, particularly solar panels, driven by incentives and tenant demand.
• 13% are prioritising ways of improving governance and visibility of ESG initiatives.
• 12% are implementing waste reduction programmes, improving resource management and compliance.