London drives improvement in UK commercial property whilst AI boom continues energising data centres

• Prime office and industrial rents are expected to grow whilst secondary properties fall further behind
• Cautious lending and geopolitical uncertainty continue to weigh on investment activity
• Rental and capital values for data centres continue to rise through AI demand
  

Tenant demand across the UK commercial property market showed signs of improvement during the second quarter of 2026, although the recovery remains heavily concentrated in London, according to the latest Royal Institution of Chartered Surveyors (RICS) UK Commercial Property Monitor.

The occupier demand indicator improved to a net balance of -5%, its least negative reading since the second quarter of 2025. Industrial demand returned to positive territory at +3%, whilst office demand remained unchanged at -4% and retail continued to record the weakest conditions, despite improving slightly to -16%.

London significantly outperformed the rest of the UK. Expectations for prime office rental growth in the capital reached a net balance of +67%, whilst prime retail rental expectations rose to +28%. Elsewhere, regional markets generally remained more subdued, although industrial rental sentiment was strongest across the Midlands and the North of England.

Across the UK, respondents expect prime office rents to rise over the next 12 months, with the net balance increasing from +39% to +51%, which is the strongest post-pandemic reading for the sector. Prime industrial rental expectations also strengthened to +45%, while secondary industrial rents moved into positive territory at +12%.

The divide between prime and secondary property remains pronounced. Survey respondents anticipate falling rents for secondary retail and office space, with net balances of -34% and -26%, respectively. Vacant space also increased during the quarter, with an all-sector availability balance of +20%, while landlords continued to offer substantial incentives to attract office and retail occupiers.

The AI boom continues to push rental and capital value expectations for data centres, with net balances exceeding +65%. Multifamily residential rents recorded a balance of +51%, while hotels and life sciences assets were expected to deliver more modest gains. Leisure remained the most challenged alternative sector, with respondents forecasting declines in both rents and capital values.

Investment conditions remained weaker than the occupier market. The investment enquiries indicator improved modestly from -11% to -8%, but overseas investor demand remained negative for a fourth consecutive quarter. Industrial assets were the strongest-performing mainstream investment category, with investor demand rising to +4%.

Twelve-month capital value expectations remained positive for prime offices and prime industrial assets, with both recording net balances of +29%. However, expectations were less optimistic than at the end of 2025 as geopolitical tensions, higher risk-free rates and cautious lending conditions affected investor confidence.

The market's position in the property cycle remains uncertain. Respondents were almost evenly divided between those who believe the market is still experiencing a downturn, those who consider it to be at the bottom of the cycle and those who see an emerging upturn.

RICS Head of Market Research and Analytics, Tarrant Parsons, said: "The UK commercial property market appears to have weathered the initial shock from the escalation in geopolitical tensions earlier in the year reasonably well, with the tone from respondents this quarter noticeably more settled than in Q1.

"Occupier fundamentals continue to hold up, and there is tentative evidence that the sharp tightening in credit conditions seen earlier in the year is starting to unwind. That said, the pace of the recovery in investor sentiment remains modest, and respondents continue to flag caution given the wider macroeconomic backdrop.

"As we move through the second half of the year, the trajectory of interest rates, alongside developments on the international stage, will remain critical to whether or not positive momentum is allowed to build."

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