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14/7/25 8:13 pm
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The latest Royal Institution of Chartered Surveyors (RICS) UK Commercial Property Monitor identifies a clear shift in mood across the commercial property sector.
In Q3 2025 both occupier and investor sentiment indices have slipped into negative territory — occupier sentiment to -12 and investment sentiment to -10.
Much of the commentary in the RICS report focuses on large-scale, institutional investors and headline office deals. But small-scale commercial landlords, owners of shopping-parade units, light industrial estates, local shops and offices or multi-let units, are very much involved.
With higher borrowing costs, faltering tenant demand requiring increasing leasing incentives, and looming forthcoming policy uncertainty, the odds are going against landlords.
The forthcoming Autumn Budget at the end of November is acting as a brake on decision-making according to RICS, and with a sector already under a lot of pressure, that clearly has a major impact.
This article investigates what this means for the smaller landlord, and what practical steps they should take now.
What does the RICS survey tell us?
Overall, it’s not a petty picture.
The Q3 2025 update of the RICS UK Commercial Property Monitor is unambiguous: weakness is spreading. The Occupier Sentiment Index declined to -12 (down from -5 in Q2) and the Investment Sentiment Index to -10 (down from -2).
Tenant demand across all property types is now registering a net balance of -10%, and in the retail sector specifically -21%. Meanwhile availability (vacancies) is rising, and landlords are offering bigger incentive packages to secure occupiers.
On the investment side, credit conditions have slipped (net balance of -12%) for the first time after two quarters of being positive. In short: the market is slipping from flat to genuinely negative territory.
Even segments that looked resilient (prime office in London, prime industrial) are seeing cutbacks in growth expectations. Secondary offices and retail are projected to experience the most material falls in rental and capital values in the year ahead says RICS.
There are few bright spots in this picture: there are some alternative sectors that are bucking the trend, including investment in data centres, aged care, multifamily rentals, and life sciences stand out as growth markets.
The upshot of all this is sentiment telling us caution is the prevailing mood. Many operators are sitting on their hands, either de-risking or waiting for more clarity. There’s been at least 6 months in the run-up to this Budget with all kinds of speculation creating a contagion of uncertainty.
For small-scale landlords, those with smaller portfolios as cushions, limited access to cheap capital and typically less margin than the large institutions, the shift in sentiment matters greatly.
The survey
The RICS survey respondents repeatedly cited fears over the upcoming November budget, warning that speculation around tax rises, pension reforms and tighter fiscal policy is delaying investment decisions and dampening market activity.
Only 22% of respondents believed the market is in the early stages of recovery. This result is down markedly from earlier in the year.
RICS Head of Market Research & Analysis, Tarrant Parsons, says:
“The latest UK Commercial Property Monitor illustrates reduced market activity. Both occupier and investor demand experienced slight dips this quarter. A cocktail of elevated bond yields, above-target inflation, and fiscal policy uncertainty is creating caution across investors.
“Landlords remain under pressure to offer increasingly generous incentives as vacancy rates continue to move higher. Meanwhile, the appetite for secondary assets continues to wane. Although prime and alternative sectors still offer pockets of resilience, the near-term outlook has become more subdued amid an increasingly challenging near-term macro environment.”
Why should small-scale landlords be concerned?
If you are the owner of a couple of commercial units, or upwards to a small portfolio - perhaps a parade of shops, industrial units or a small multi-let office building - the ecosystem of your business is vastly different from that of the large corporate landlord.
With fewer tenants, many with marginal covenant strength, there’s less margin for error. Shorter lease terms, and more exposure to local market conditions means the current sentiment and budget uncertainty can hit harder.
First off there’s tenant risk and the prospect of adverse lease re-negotiation. Softening occupier demand means smaller landlords may have to offer better incentives such as longer rent-free periods, contributions to fitting out costs or they are forced to accept weaker covenant profiles. What might have been ‘market’ value two years ago may no longer make it.
It's a tenant’s market
There’s a greater vacancy risk. Rising vacancies means there’s more choice for tenants and therefore competition for tenants increases. A vacant unit in a local industrial estate or shopping parade may remain vacant longer, applying real cash-flow pressures on landlords.
Vacant units for smaller landlords can have disastrous consequences. With business rates, insurance, security and utility charges all to be paid for.
Credit is becoming more difficult to obtain at reasonable rates, becoming more restrictive (net balance -12). Smaller landlords often rely on a bank or specialist lender as opposed to the debt markets with deep spread cushions available to institutional investors. A refinancing shortfall or rising debt margin can be painful.
Declining capital values
Capital value expectations are being trimmed. Depressed capital values during the Covid pandemic have barely recovered. A forced sale would probably result in a sale price materially lower than current book values and smaller landlords often have less flexibility to manage under-performing assets.
The impending Autumn Budget is creating an environment of uncertainty, a ‘wait-and-see’ situation where small-scale landlords may be delaying investment decisions, particularly affecting legally required upgrades to meet higher EPC standards or general refurbishments and refinancing. This delay in itself is costing money. In short, the environment is tougher than in recent years. Small-scale landlords need to be cautious, what worked before may not be working now.
What are the primary risks landlords should be aware of?
Commercial landlords operating on a smaller scale should be aware of the major pressure points and monitor them closely. Occupier demand is key as is covenant strength. With tenant demand weaker (-10 net balance), landlords will likely see fewer enquiries, longer voids / slower lettings, and possibly lower tenant quality.
This will be especially acute in less-good (secondary or tertiary) locations with older property stock. The retail reading of -21 underscores the fact that some shopping parades will be under heightened stress.
It’s a tenants’ market in many locations for commercial property so the need to offer motivational packages to attract tenants is there — longer rent-free periods, stepped rents, fit-out contributions, etc. These measures all erode yields and cash-flow.
With credit conditions slipping and debt margins increased, landlords need to keep a close eye on maturity times. They should be making enquiries and looking ahead at the terms for re-financing where this is necessary. What is the safety margin if interest rates go up or voids extend?
Secondary offices, shopping parades, older industrial units. These are likely to be most impacted by the shifting dynamics of the market. The RICS survey projects falls for secondary office and retail assets. In contrast, prime industrial and offices, and some of the alternative sectors, offer more optimism. Landlords owning lower-quality stock may be disproportionately affected.
Some responses small-scale landlords should make
Here are a few steps the smaller commercial landlord should take to safeguard their investments and get through a very difficult period:
They should be aware of letting arrangements; when rent reviews are due, when leases expire and when the breaks clauses are triggered. Will the building meet current and future environmental standards and if not, will it warrant upgrading with new investment?
Can a landlord stand a prolonged void period? Let’s assume the tenant vacates at the end of the lease and they have a 9-month void. They should model the cash-flow needed against their finance arrangements to assume a worst-case scenario.
Consider a plan B. Is the property viable in its current use and would it be more viable if it can be repurposed. A better-spec industrial unit may attract demand even in low demand markets, whereas a tired shop in a parade of shops may struggle. Residential conversions may provide an answer or is now the time to sell and cut losses, perhaps to redeploy resources into more lettable space.
In summary
The RICS data shows that confidence is eroding, not a total collapse. For smaller commercial landlords conditions are tough. What matters is having the ability to attract and keep good tenants. Crucially landlords need to maintain cash-flow while juggling tenant demand and funding.
The looming Autumn Budget has been operating like a brake on commercial property decision-making when often there’s a need for new investment to improve the tenant attractiveness of a building while meeting the new environmental standards.
Landlords need to make sure they can stay the course, absorb the shocks and stay solvent by stress testing their financing and upgrading where it’s possible. The time to act is now because waiting for clarity means risking being left behind.
[Main image credit: Phil Evenden]
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