While the impact of the war in the Middle East on the economy is a threat to the gradual recovery of the commercial property market, the cautious optimism that has prevailed in Q1 remains and there are key opportunities for savvy investors to target as Q2 gets under way.

What are the key market trends and where are the opportunities?

The decent finish to 2025 was maintained in the first quarter, with capital returning to the market and investment activity continuing on an upward curve. However, the sector remains polarised to a notable extent, with awareness of key trends integral for investors looking to do deals in the market’s main subsectors.

Industrial and logistics remains the main engine of the market, although in Q1 it continued to mature and stabilise, with key operators optimising their infrastructure and vacancies rising. Nevertheless, competition for sites is expected to fuel momentum, with prime locations particularly attractive.

Polarisation is particularly notable in the office sector, where quality, location and sustainability profile are all crucial sell factors. Notably, high-quality flexible working space, which allows companies to avoid long-term real estate commitments, is a growing focus. As such, there is rising demand for this type of office space and this trend can be expected to continue into the next quarter and beyond, with a focus on major cities, including London.

The picture is similar in retail, with opportunities for investors strongly focused in prime location sites. Noticeable demand for limited high-quality space, especially in retail parks, is set to continue to frame sector development in 2026. It is hoped that this activity will fuel a significant uplift in retail, with non-prime retail continuing to struggle.

What specialist sector should investors be aware of in 2026?

Away from the main subsectors, a number of specialist property markets continue to offer good opportunities. The data centre space remains buoyant as AI development expands at pace, with this development increasing competition for sites.

Life sciences is another space performing well. Interestingly, approval has been received for a life-sciences hub in Oxford that will see a large city-based department store converted. Such a move again underlines the competition for space and perhaps points to an expansion of the retail-to-residential/leisure trend, potentially offering a lifeline for beleaguered city sites.

This move to greater mixed use is also encompassing another solidly performing specialist market – student accommodation. The recent announcement that a new regeneration scheme in Elephant and Castle in London will include a mix of residential, student accommodation and leisure sites is an example of such development.

Threats to market recovery and accessing investment finance in 2026

Overall, the first quarter has been a positive one for the commercial property sector, although recovery remains gradual and somewhat fragile. The strength of this upturn will be put to the test by the fallout of the US/Israeli-Iran conflict. Notably, rising energy costs were already a threat to growth before the war, so an increase in oil prices, coupled with greater economic uncertainty, could stymie any market revival.

Against this backdrop, with polarization set to remain a defining market trend, accessing finance will continue to be critical for investors looking to take advantage of commercial property opportunities. Notably, with legacy lenders still proving cautious, the role of alternative finance looks set to expand as investors are attracted by its accessibility, flexibility and affordability. In such an environment, the choice of commercial loan and mortgage provider is more important than ever.

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.