Demand for commercial property softened in the first quarter of 2026 with three of the four main sectors recording year-on-year declines as geopolitical uncertainty and interest rate expectations weighed on activity.
According to Rightmove’s Commercial Insights Tracker, offices, retail and leisure all saw falls in both leasing and investment demand compared with a strong Q1 2025.
Office leasing demand dropped 3% year-on-year, while investment demand fell 9%. Retail saw declines of 9% and 2% respectively, and leisure recorded the sharpest falls, down 11% for leasing and 14% for investment.
By contrast, the industrial and logistics sector continued to outperform, with leasing demand up 6% and investment demand rising 13%, reinforcing its position as the standout growth area within commercial real estate.
BIG-BOX LOGISTICS
Lewis Rapley, Logistics Research Associate in Commercial Research at Savills, says big-box logistics demand remained robust.
He adds: “In terms of leasing for sheds across the UK over 100,000 sq ft, Q1 2026 take-up totalled 7.6 million sq ft, which is 11% higher than the same quarter last year.
“It was also 16% higher than Q4 2025, which showed momentum continued into the new year. 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.”
And Vincent Scammell, Director of Sales and Operations at BizSpace, says structural trends were continuing to support industrial demand.
“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.”
He adds: “We are also seeing rising demand from defence-adjacent sectors, particularly across heavy manufacturing, technology and R&D supply chains, supported by increased government defence spending across Europe. With urgency high, existing stock remains the only scalable solution.”
UNCERTAIN MARKET
However, the quarterly slowdown comes against a strong comparative period in 2025, with activity still holding up over a longer timeframe.
Overall investment demand across the commercial sector fell 5% year-on-year but remained 10% higher than two years ago.
Office investment demand, despite a 9% annual drop, is still 53% higher than at the same point in 2024, while leisure and retail sectors also remain ahead of their two-year benchmarks.
Andy Miles, Managing Director, Commercial at Rightmove, says uncertainty was beginning to influence decision-making.
“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.”
STRONG FUNDAMENTALS
And Darren Bond, Global Managing Director at Christie & Co, adds that underlying demand remained resilient where fundamentals were strong.
“Activity across our specialist operational real estate sectors was resilient in the first quarter of this year, supported by continued demand for businesses with strong fundamentals and sustainable underlying income.
“While decision-making is being shaped by interest rate expectations and cost pressures, well-priced opportunities continue to be attractive, particularly where businesses are well run and performance is clearly evidenced.
“As we move further through the year, realism on pricing and clarity around business sustainability will remain key to maintaining momentum across these markets.”
NUANCED PICTURE
Michael Sears, Advisory Panel Member of Propertymark’s NAEA Commercial, says: “This latest snapshot of the commercial market reflects not just a softening in headline demand, but a more nuanced picture shaped by regional variation and wider economic instability.
“While year-on-year declines across office, retail and leisure may appear concerning, they need to be understood in context.
“Much of the slowdown is coming off a particularly strong 2025, and activity levels remain above those seen two years ago.
“That said, the data clearly points to a market that is becoming more cautious, with both occupiers and investors reassessing commitments in the face of ongoing uncertainty.”
