Higher borrowing costs and tighter lending conditions are weighing on the UK commercial property investment market, according to the latest Royal Institution of Chartered Surveyors (RICS) UK Commercial Property Monitor.
The Q3 2026 survey shows investment sentiment weakening as rising gilt yields put further pressure on the outlook for property values.
However, occupier demand remains relatively stable, while respondents continue to anticipate rental growth for prime offices, industrial property and several alternative sectors.
The credit conditions indicator fell to a net balance of -37%, from -23% in Q2, signalling a more restrictive lending environment. Meanwhile, the Investment Sentiment Index declined to -13 from -8, with the majority of respondents now viewing the market as being in a downturn.
Investment enquiries weakened to a net balance of -11%, compared with -8% in the previous quarter. Overseas investment demand also remained negative across offices, retail and industrial property for a fifth consecutive quarter.
Expectations for capital values over the next three months became more downbeat, with the headline net balance falling to -15% from -11%. Industrial property expectations moved into negative territory, while retail continued to record the weakest outlook among the three mainstream sectors.
The occupier market proved more resilient. Overall tenant demand slipped modestly to a net balance of -8%, from -5%, broadly matching readings seen at the start of the year. Industrial demand was close to flat, while office and retail demand remained negative.
Despite the subdued backdrop, respondents still expect rental growth for higher-quality premises over the coming year. Prime office rental expectations returned a net balance of +41%, followed by prime industrial property at +38%. Both readings eased from Q2 but remain firmly positive.
By contrast, rents for secondary offices and retail premises are expected to fall, underlining the continuing divide between prime and secondary property.
London was the only region to record a positive occupier demand balance, at +4%. Expectations for prime office rental growth in the capital remained particularly strong at +64%. Prime industrial rental expectations were also robust in the North of England and the Midlands, at +54% and +46% respectively.
Among alternative sectors, data centres continued to lead expectations for both rental and capital value growth, recording net balances of +58% for each. Aged care facilities and multifamily housing also retained positive outlooks, although student housing capital value expectations weakened to -14%.
Tarrant Parsons, Head of Market Research and Analysis at RICS, said: “The latest survey results point to a more challenging backdrop for the commercial property market, with the investment side bearing the brunt of higher borrowing costs following the recent rise in gilt yields to their highest levels in almost two decades. As financing conditions have tightened, expectations for capital value growth have softened, particularly in the near term.
“That said, market conditions remain far from uniform. Occupier demand has proven relatively resilient, albeit somewhat less robust than in the previous quarter. Prime offices and industrial assets continue to outperform, with respondents still anticipating rental growth and modest capital value appreciation across these segments over the year ahead. In contrast, sentiment towards secondary assets has weakened further, highlighting an increasingly pronounced divergence in performance across the market.“
