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As we look ahead to 2025 and beyond, the commercial property market continues to experience shifts as businesses strive to ‘rightsize’ and establish a ‘new normal’ that works for them, their staff and their customers. Drawing on insights from recent industry reports and STEP’s ongoing experience, I’ll explore the core trends shaping the future of commercial property.
1. Industrial Spaces: Growth with Challenges
The demand for industrial spaces, including logistics and specialised units, is still higher than most parts of the commercial property market and is still higher than pre-COVID levels. However, this growth is expected to slow down as new units are brought to market and vacant rates therefore rise. Cluttons reports that vacancy rates for industrial spaces have risen to a near 10-year high of 4.7%, spurred mostly by logistics spaces at 5.6%. Small and specialised industrial areas see lower vacancy rates at 2.8%.
Recent research indicates that by 2028, Scotland will require approximately three million square foot of additional industrial space to keep up with the growth in the manufacturing sector. A significant focus within this demand is from the food manufacturing and processing industry, which is seeing increased interest in smaller urban units due to a boom in local food production and is predicted to need an additional 38 and a half thousand square foot by 2028.
2. Office Market Dynamics: Quality Over Quantity
Office space demand has rebounded slightly over the past year but remains below pre-pandemic levels. Before COVID-19, the UK’s overall office vacancy rate was around 4%. In Q2 2024, this rate increased to 6.6%.
According to CBRE Group, 80% of companies have downsized their office space since the pandemic. Supporting this trend, YouGov data reveals that half (50%) of UK businesses no longer require employees to be in the office five days a week. Of those businesses, only 33% expect their employees to come into the office for 1-3 days a week. This leaves a significant 17% of UK businesses that do not require their employees to come into the office at all.
While there is a slight uptick in demand, this recovery is largely driven by a shift towards high-quality spaces in prime locations, which is more appealing to businesses looking to encourage their teams back to the office.
Employers now face the challenge of making the office an attractive option for their employees. It is not just about choosing office – v – home; it’s about choosing office and commute – v – home and the challenges of a continuous work environment (which we’re just beginning to see).
High-quality office spaces, offering better amenities and modern designs, are seen as key to bridging this gap and promoting a balanced work-life approach.
Meanwhile, a significant amount of B-grade office stock remains vacant and will need to be upgraded or repurposed to attract tenants. Savills report that between 0.7% and 0.9% of total office stock (which currently doesn’t meet demand quality) will be repurposed each year to strike a balanced market by 2033. Support from local authorities for planning approvals and adaptive reuse projects is crucial. Without this cooperation, these older office spaces may remain unused, slowing the overall recovery of the office market.
As mentioned earlier, businesses are still working to establish their new normal, with ‘rightsizing’ continuing to shape their decisions. Research forecasts a further 12% decrease in office space demand in some areas of the UK, such as London, by 2026. We see this trend across our sites in Stirling, as tenants adjust and move to find the right fit for their needs. This is why we take pride in not charging fees for upsizing or downsizing space and we don’t bind businesses to long-term leases if they need to relocate. Our focus is on working collaboratively with businesses to find flexible solutions that support their long-term success.
3. Hybrid and Flexible Spaces: Adapting to Change
The shift toward hybrid working is reshaping office layouts. Spaces that support a blend of in-person and remote work are more desirable, pushing companies to rethink their property strategies. The demand for flexible spaces is changing, with many businesses seeking properties that can adapt quickly to varying occupancy levels and collaboration needs.
We’ve observed a decline in demand from the co-working boom that followed the pandemic. According to Savills, flexible office take-up represented 4% of total office take-up in 2023, a drop from the 8% peak recorded in 2019 and down from the 7% seen in 2022. Businesses are now leaning more towards plug-and-play serviced offices rather than co-working spaces, due to concerns about shared Wi-Fi and communal desks. This shift reflects the growing focus on cybersecurity and data protection in today’s business environment.
4. Sustainability Moves From Centre Stage to the Sidelines
Sustainability, once at the top of the wish list for businesses, has been pushed down the priority list due to the rising cost of doing business. However, we now live in a world where sustainability by design is the norm. Sustainable buildings and features are expected as a standard, not as an added bonus.
Sustainability is no longer a luxury—it’s essential. Properties that lack eco-friendly credentials are likely to face rental pressure as tenants increasingly seek energy-efficient solutions to help reduce operational costs and meet environmental standards. According to the CBRE and Analytiqa European Logistics Occupier Survey 2023, 90% of logistics occupiers now have a net zero carbon target, up from the previous year, and 51% have dedicated budgets to achieve these goals.
Despite this, the impact of rent increases and utility increases has made cost the primary consideration for occupiers, outweighing even lease flexibility. For SME’s this has had significant impact when prioritising sustainability.
5. The Rise of Multi-Purpose Spaces
Adaptability is key as businesses look to maximise the use of their space. The demand for premises that support a mix of uses—from collaborative work and private offices to client-facing areas—reflects an industry shift. Properties offering this kind of versatility are likely to remain attractive, particularly for SMEs looking for cost-effective, multi-functional environments.
6. Retail: Adapting to a New Shopping Era
The retail sector continues to face challenges as it navigates post-pandemic recovery and shifting consumer behaviours. Retail sales are expected to remain subdued in 2024 and beyond, with many retailers facing tough trading conditions.
While some expansion is anticipated as retailers adapt their strategies, companies like M&S are leading the way by investing in innovative solutions such as self-checkouts in fitting rooms to boost clothing sales. They are also accelerating store rotations and renovations to build a more efficient portfolio of around 180 full-line stores, alongside plans to open over 100 new food-focused stores in high-growth locations that support omnichannel retailing. This strategic shift highlights a move away from clothing-only outlets to a mix of full-line and food-only stores. Profit margins, however, are likely to remain under pressure.
Retail parks have become a preferred choice for many businesses due to their strong alignment with consumer preferences (like being able to park for free!) and more flexible spaces. Vacancy rates in retail parks are narrowing as they attract a broader range of tenants. This trend is expected to continue into 2025 as retailers seek out robust, consumer-friendly locations to weather challenging market conditions.
In contrast, shopping centre vacancy rates remain high on average, although prime locations continue to see strong occupancy and rental growth. In contrast there are a few Shopping Centres with the best-in quality and in the busiest of locations that are benefiting from competitive tenant demand, with some retailers upsizing their units to offer enhanced customer experiences—a trend that shows no signs of slowing down.
Online sales have stabilised, broadly returning to the pre-pandemic trend seen from 2015-2019. Moderate growth is projected, reaching a 28% increase by the end of 2024.
Despite some high-profile retail closures contributing to a 0.3% increase in vacancy rates (returning to Q1 2022 levels of 11.7%), this trend does not apply uniformly across all asset types.
The resilient performance of retail parks, supported by consumer trends, suggests this sub-sector will continue to perform well in the coming year.
For SMEs, adapting to these conditions means focusing on smaller, more flexible retail spaces and leveraging opportunities in prime locations or retail parks that align with evolving consumer habits.
7. Food, Beverage, and Leisure: More pain to come
The food, beverage, and leisure sectors are dealing with a challenging environment shaped by changing customer habits and economic pressures. While people are still interested in dining out and entertainment, the new Government budget has added cost pressures. Higher business rates, increased staffing costs, and changes to tax reliefs mean many businesses will see their operating expenses rise. Discretionary spending is still a major factor, and if household budgets tighten further, it could affect revenues in these sectors.
Businesses that can adapt by offering unique, high-value experiences and focusing on customer engagement are more likely to succeed. For SMEs, running efficient operations and finding new revenue sources will be key to staying resilient in the face of economic uncertainties and policy changes.
8. Other Sectors: Emerging Opportunities and Shifts
Other commercial property sectors, including hotels, self-storage, automotive, and data centres, continue to adapt and evolve.
The hotel industry is gradually recovering, with 2024 marking the first potential year where UK occupancy rates could surpass those of 2019.
Self-storage facilities are seeing steady demand as they offer cost-effective solutions with lower operational expenses.
The automotive sector is shifting, with many owners consolidating their profiles to optimise space and adapt to changing consumer preferences, including electric vehicle needs.
Data centres are experiencing significant growth in demand for capacity as businesses rely more heavily on digital services and remote work infrastructure.
Life sciences also remain a high-growth area, with ongoing demand for laboratory space expected to surpass supply, although relief is anticipated as new projects are completed and become available.
The commercial property market in 2025 and beyond will focus on flexibility, sustainability, and smart planning. SMEs in central Scotland should look for good-quality, multi-use spaces, use technology to run smoothly, and choose eco-friendly properties to stay competitive.
Need help finding the right space for your business? Our property team isn’t focused on sales—they’re here to find what works best for you. Whether you need just a desk, an office, an industrial unit, or even advice on whether you’re ready for a space, STEP is here to help.
