The commercial property market has endured an incredibly tough few years but talk of recovery is growing louder. There are no guarantees, but meaningful growth could be on the cards in 2025. The big question is, what sectors will drive it?

Where’s the potential in the downtrodden office space?

One sector that is crying out for better days is office space. To say that this market has had a turbulent time is something of an understatement. A reversal of the trend for remote working would be a significant shot in the arm for the sector, but despite the announcement by Amazon of a strict new office policy, there are few signs that widespread change will take place anytime soon in the UK.

As such, the continued prevalence of this trend will frame sector development going forward. The focus on flight to quality will continue, in particular in terms of building sustainability profile. Notably, the cost of redeveloping older buildings with gas-powered heating and hot water so they will meet new stricter greenhouse gas emissions regulations, and what this means for the future of these buildings, has been highlighted recently.

What happens to non-prime assets remains to be seen. Redevelopment into residential use is an option, but location is critical, as is parking. As a result, out-of-town office space may prove more dynamic in this scenario.

Where is the potential in two-tier leisure and retail outlooks?

Leisure is another sector in the doldrums, largely as households remain cautious in terms of spending, with goods continuing to be prioritised over services. As for an upturn here, much may depend on the Budget and what pressure is put on high-earner income – if this is squeezed, the pace recovery may prove slow. As such, in terms of potential, there could be a notable split in this space, with location integral to performance.

Recovery in retail is also likely to be two tier. Prime shopping centres are set to be the key growth driver, with non-prime sites less attractive. Again, location is critical, as increasingly is experiential-related development.

What will make the difference to high-street performance?

With regard to the beleaguered high street, while much lower rents should prove attractive, the future of business rates is integral to any recovery. If the burden in significantly lessened or removed for a large number of businesses in the upcoming Budget, the health of the high street could improve notably.

Also worth mentioning here is the health of market town property. While remote working has had a negative impact on office space, the reverse is true for market town properties, with at-home workers spending more on services locally. How the remote working trend develops is critical here, but given the current state of affairs, there is still potential in this space.

What sector will be the key driver of property market growth in 2025?

Lastly, but no by means least, in terms of commercial property market growth in 2025, it seems that warehousing/industrial space will remain the engine room going forward. Key trends here are a lack of quality space for major players and their keenness to future-proof supply chains as much as possible.

News that Marks and Spencer is eyeing up a jumbo-sized warehousing facility in the Midlands is further evidence of this movement, with the focus clearly on well-connected, strategically located large sites. Nike and Greggs are other major firms to have invested in mega-sized warehousing deals in recent months.

Optimism, caution and why choice of commercial finance partner is key

Looking ahead, as optimism grows, there are clearly good deals to be had for savvy investors. But caution is still required. Critically, recovery may prove to be slow process, in line with the general economic forecast for the next 18 months, and analysing the different sectors, it is clear that sector growth will not be linear.

Against this background, including with interest rates coming down, access to finance will be integral to successfully moving on commercial property market opportunities. And this makes your choice of commercial loan and mortgage provider critical, with ease of access to capital, flexibility and affordability absolutely essential.

To find out more about A&T Business Associates services for commercial property investors, contact Tony Hedger on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.