Commercial property demand falls as rate rises loom

Commercial property demand slipped across most sectors in the first quarter, with both leasing and investment activity down year on year as geopolitical tensions intensified and mortgage rate expectations shifted.

Data from Rightmove’s Commercial Insights Tracker shows office leasing demand fell 3% compared with a year earlier, and investment demand dropping 9%.

Leisure saw leasing down 11% and investment off 14%, while retail recorded falls of 9% and 2%.

Industrial and logistics moved the other way as leasing demand rose 6% year on year and investment increased 13%, extending growth seen over recent quarters.

Big logistic unit demand

There was also movement in the larger end of the logistics market as take-up of units above 100,000 sq ft reached 7.6 million sq ft in Q1.

That’s 11% higher than a year earlier and up 16% on Q4 2025, according to Savills.

Lewis Rapley, a logistics research associate at the property consultancy, said: “While the full impact of the war in Iran is still too early to tell, it is encouraging to see demand and viewings/enquiries remain robust.”

Vincent Scammell, Director of Sales and Operations at BizSpace, pointed to continued demand for industrial space, even as other sectors eased.

He said: “Despite a more uncertain geopolitical backdrop weighing on some sectors, demand for industrial space continues to grow.

“This reflects a longer-term shift, with SMEs prioritising operational resilience, supply chain flexibility and access to well-located space over long-term fixed commitments.”

Declines follow stronger activity

The annual declines follow stronger activity through 2025 in offices, retail and leisure.

Overall investment demand across commercial property fell 5% year on year, though it remains 10% higher than two years ago.

Office investment demand, despite the 9% fall, is still 53% above levels seen two years earlier.

Leisure and hospitality show a similar pattern when set against that same point.

Rightmove’s managing director of commercial, Andy Miles, said: “The uncertainty from the fallout of the war with Iran may have given both businesses and investors a reason to pause for thought.

“At a time when many analysts are predicting two or even three increases to the Bank of England’s base rate this year, decision making becomes difficult.”