Over the past five years, the commercial leasing landscape has changed unrecognisably. I’ve been advising tenants for over a decade now, and I’ve never witnessed such a fundamental shift in market dynamics and tenant priorities. What we’re seeing isn’t just a temporary blip; it’s a structural realignment of how businesses approach their property strategies.
The Caution Era: Post-COVID Decision Making
I think most tenants now are considerably more cautious in taking on space. More than ever, tenants are going through serious research and decision-making to decide on how long they want to renew their lease for; is 10 years too long? Will the landscape change too much?
This caution isn’t unfounded. According to data from the British Property Federation, average lease lengths for commercial properties have fallen by nearly 31% since 2019. Where once 10-15 year commitments were standard, we’re now regularly negotiating 3-5 year terms with break options.
Five years ago, COVID had a profound impact, creating a level of uncertainty not previously seen, and we still haven’t fully recovered from that. The psychological impact cannot be overstated. Business owners who lived through enforced closures and remote working experiments have fundamentally changed their risk appetite.
Remote & Hybrid Working: Permanent Shift or Temporary Adjustment?
Perhaps the most visible change has been the adoption of remote and hybrid working models. This wasn’t just a COVID necessity; it’s evolved into a strategic approach to talent retention and workspace utilisation.
The Office for National Statistics reported in their latest workspace survey that approximately 42% of UK businesses have adopted some form of hybrid working policy. This isn’t evenly distributed across sectors, though financial services, technology, and professional services lead the charge, while retail, hospitality and manufacturing naturally show lower adoption rates.
For landlords, this has created challenging market conditions:
- Savills reported that UK office vacancy rates hit 9.2% in 2023, nearly double the pre-pandemic average
- Grade B office space has been particularly hard hit, with some regional markets seeing vacancy rates above 15%
- The divergence between prime and secondary space has widened considerably, with rental gaps in some cities expanding by up to 30%
The Flight to Quality & ESG Considerations
Interestingly, while overall space requirements have often reduced, we’re seeing businesses place greater emphasis on the quality of their remaining space. A client recently told me, “If we’re asking staff to commute in, the office needs to be worth the journey.”
This flight to quality has created a two-tier market:
- Prime, energy-efficient spaces with strong ESG credentials continue to command premium rents
- Secondary spaces face significant challenges, often requiring substantial landlord incentives to secure tenants
The Minimum Energy Efficiency Standards (MEES) regulations have accelerated this trend. With buildings below an EPC rating of E already unlettable and the minimum threshold set to rise to B by 2030, many landlords face significant refurbishment costs.
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Flexibility: The New Non-Negotiable
Again, I think tenants mostly want to build in a level of flexibility to be able to either move and expand up if things are going well, or conversely, if things aren’t going well as expected, to come out of a building and limit their liability.
This demand for flexibility manifests in several ways:
- Break clauses: Once considered a “nice to have,” now they’re often deal-breakers
- Assignment/subletting provisions: Tenants demand more favourable terms to manage potential downsizing
- Expansion rights: First refusal on adjacent space is increasingly important for growing businesses
- Shorter initial terms: The standard 10-year lease with a 5-year break is being challenged
Market Volatility & Economic Pressures
The post-COVID landscape has coincided with significant economic turbulence. Inflation peaked at over 11% in 2022, interest rates rose from historic lows to over 5%, and energy costs soared. This economic volatility has made long-term property commitments even more challenging to evaluate.
This uncertainty has led to some creative approaches:
- Turnover rents: More retailers are pushing for rents linked partly to store performance
- CPI-linked increases rather than fixed uplifts, often with collars and caps
- Stepped rents that start lower and increase gradually to help with initial cash flow
- Service charge caps and exclusions to provide greater cost certainty
According to RICS data, around 22% of new retail leases now incorporate some form of turnover element, up from just 7% pre-pandemic.
Sector-Specific Impacts
The changes haven’t affected all sectors equally:
Retail: Perhaps hardest hit, with the British Retail Consortium reporting that one in seven retail units now stands empty across the UK. However, we’re seeing interesting trends with short-term “meanwhile” uses and the repurposing of larger units into mixed-use spaces.
Offices: As discussed, a significant reset in how space is used, with emphasis on quality collaborative spaces rather than rows of desks.
Industrial/Logistics: The pandemic’s e-commerce boost created unprecedented demand, though this has cooled slightly. Savills reports that logistics take-up in 2023 was 35% above the five-year average despite economic headwinds.
Hospitality: After the existential threat of lockdowns, many operators secured more favourable leases, with some landlords accepting revenue-share arrangements rather than traditional fixed rents.
How We’re Helping Tenants Navigate This New Landscape
In this transformed market, expert representation has never been more valuable. We’re helping clients:
- Leverage market conditions to secure favourable terms
- Build flexibility into lease structures without paying excessive premiums
- Anticipate regulatory changes like MEES and factor these into negotiations
- Right-size their portfolios based on hybrid working patterns
- Stress-test property decisions against multiple business scenarios
Looking Forward: The Next Five Years
While no one has a crystal ball, certain trends seem likely to continue:
- The split between prime and secondary space will widen further
- Sustainability credentials will become even more critical to letability
- Lease flexibility will remain a key tenant requirement
- Technology-enabled spaces will command premium rents
- Repurposing of obsolete commercial stock to alternative uses will accelerate
The most successful landlords will be those who recognise these structural shifts aren’t temporary – they represent a fundamental reset in the commercial property relationship.
Conclusion: Opportunity Amid Change
Despite these challenges, I remain optimistic. For well-advised tenants, the current market offers unprecedented opportunities to secure favourable terms, reduce occupancy costs, and create property strategies that truly support business objectives.
The key is approaching negotiations with clear objectives, market knowledge, and expert representation. Remember, in uncertain times, landlords value quality tenants more than ever, and that creates leverage that didn’t exist in the landlord-favourable markets of the past.
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