Despite a continued drag on business confidence, a number of economic indicators show higher-than-expected growth. So why is the investor market so slow to respond?
Is the market stable, or just sluggish?
At the beginning of the year, we were optimistic that we had turned a corner and were seeing the dawn of market recovery. Tariffs, an escalation of geopolitical conflict, and negative political rhetoric have since dominated the airwaves, with a tangible impact on business and investor confidence. While these events are not insignificant, it is easy to believe that ‘everything’, including the economy and the real estate market, is in a poor state. But are things really as bad as they seem? Dark clouds do not always deliver rain.
Firstly, if we compare a number of economic indicators to twelve months ago, the situation in some areas has improved more than it has declined. The Bank of England (BoE) base rate is down 100 basis points (bps), construction GVA has moved from negative to positive territory, and exports (particularly service exports) have seen stronger-than-expected growth. The UK housing debt-to-income ratio is the lowest since 2007, and consumer confidence also improved, despite the drag from inflation. As a consequence, in September, the British Chambers of Commerce (BCC) revised its previous GDP forecast from 1.1% to 1.3%. Not exactly inspiring, but not as gloomy as may have been anticipated.
If the market seeks consistency, this can be found in Savills prime commercial yields, which, for September, are unchanged since last month, and ten sectors haven’t moved in over a year. There are obvious concerns of market flatlining, but investors holding out for stability and predictability can take comfort that the wider economy is not making things worse for commercial real estate, just dragging its recovery. In fact, in Q2 2025, total commercial property investment saw the second-highest volumes in 13 quarters, and at the end of Q3, we are confident that total volumes for office and industrial sectors in 2025 will exceed the total for 2024.
The next event in the ‘sentiment calendar’ is the Budget in November. Budgets are not always big news, but with the Exchequer needing to raise £20–£30 billion, significant changes are expected, with markets concerned it will fall to business to help plug the gap (see business rates, below). The Chancellor has now hinted that the government may reverse its pledge to avoid tax increases on consumers, but VAT would not be touched. This once again puts some investors into wait-and-see mode.
Business rates – a shot in the arm for the high street?
The proposed business rate revaluation for England and Wales in April 2026 is resulting in some eyebrow-raising changes, with varying impact across commercial sectors. The key beneficiaries will be higher relief on small retail and leisure properties with rateable values less than £51,000, but a higher multiplier for all properties with rateable values in excess of £500,000. This latter group represents less than 1% of all properties, but captures the majority of large distribution warehouses, including those used by online retail giants. Transitional relief is expected to phase in large RV increases to cushion the impact. Consequently, the industrial and logistics sector expects to see average increases of 21%, while in the office sector, an average increase would be 6%.
Part of the rationale for these changes is to create long-term certainty and support for high streets, including responding to the 27% of trade that has been lost to e-commerce (i.e., via logistics occupiers) over the last decade. The average change to retail shops is expected to be -0.6%, and on a number of locations we have analysed, 75% of city centre retail units can expect to see their business rates reduced next spring. High streets and shopping centres continue to suffer from oversupply, voids, lack of identity, and low investment, so it is easy to see why the government is keen to reverse the last rates review that punished many parts of retail and leisure that had kept their head above water during the pandemic.
However, the law of unintended consequences means there will be a number of impacts on the retail sector too. E-commerce is no longer simply an online versus offline proposition. Most of the UK’s national brands operate in both spheres, often with significant shop estates and their own large warehouse estates, or requiring support from third-party logistics providers, who will likely pass on additional costs to them. Even smaller brands and independents rely on complex supply chains, so may see an increase in product shipping costs. Geography will also play a key role, with prime London retail likely to see little benefit. The key question is whether additional costs from rates associated with retail logistics will be further passed on to the consumer.
The devil is in the detail, and the key date for determining the exact impact by property type and size is likely to be laid out in, if not before, the Budget, when the government will announce all multiplier rates for 2026–27 and details of its transitional relief scheme. All retail shops over the £500,000 threshold may yet be exempt.
The first three quarters in 2025 have seen retail footfall increase year-on-year (YoY) in all sectors, which has more than compensated for the falls seen in 2024. In Q3 2025, shopping centres saw the highest sector growth in footfall for the first time in two years, while retail parks continue to offer the most resilience to investors, but even high streets have seen footfall in positive territory in the first nine months of 2025.
From January to September of both 2023 and 2024, debit card spend grew 1% YoY, according to Revolut. The same period in 2025 has seen growth of over 10%, with the biggest boost being seen in entertainment spend (+23%). The trends are broadly consistent with Barclaycard data and critically exclude retail’s Golden Quarter, therefore reflecting a greater degree of ‘everyday’ spending behaviour. There continues to be a clear emphasis on leisure spending, with fashion, grocery, and restaurant goods sales relatively flat during the period.
Consumers appear to be making more purchases at lower ATV (average transaction volume), which shares spend but narrows margins, or fewer purchases at higher ATV that benefit fewer retailers. Both traits mean that traditional footfall metrics can be unreliable without incorporating local banking or sales data.
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