With the backdrop of stretched valuations, shifting occupier trends, sustainability imperatives, and tax headwinds, the industry seems to be largely on pause at present, nervously awaiting this month’s Budget.
Whilst economists speculate on which wider tax-raising levers will be pulled, we’ve asked: What would a “best-case” Budget look like for the commercial property industry – if government and industry align the stars?
Key policy levers and how they could play out
1. Taxation of property income, gains and transfers
Current context:
- One of the headlines for property is tax change. For example, commentary suggests that taxing rental income (via National Insurance or similar) is under active consideration.
- More broadly the property sector is aware of creeping tax burdens: higher CGT, IHT, business rates pressures.
- The sentiment in the market is cautious.
Best-case scenario for property:
- The Chancellor signals no unexpected punitive tax rises for commercial real estate (i.e., no surprise increase in CGT or stamp duty that materially hits investor sentiment).
- Instead, a tax clarity package is launched: e.g., a fixed “safe-harbour” period for certain property disposals, or a commitment to no major change for 3-5 years. That gives investment confidence.
- For landlords/owners, any new tax (e.g., rental income tax) is phased, with allowances or transition reliefs, allowing the sector to adapt rather than suffer a shock.
- Possibly a targeted investment allowance or relief reinstated for property refurbishment, sustainability upgrades or conversion of older stock (see below) – reducing effective tax rate on capex.
- Result: property investors see a stable fiscal backdrop, deal-flow improves, hold-periods lengthen (reducing the “short-term flip” mindset flagged by analysts).
Implications for the industry:
- Longer hold-periods means larger institutional investors may step up, driving more capital into prime assets and reducing the discount applied for risk.
- Smaller investors may still struggle if tax burdens are high; a best-case ensures their viability.
- Portfolio owners can plan refurb programmes and refinancing with greater confidence.
2. Business rates, property taxation and landlord/tenant cost burdens
Current context:
- Business rates remain a big issue. The retail/leisure sectors have already seen reliefs and changes.
- Operating costs for landlords are rising (energy, maintenance, ESG compliance) and any tax/levy increases squeeze returns.
Best-case scenario for property:
- The Budget offers a moderate relief or phased reduction in business rates for commercial real estate where buildings are repurposed (e.g., offices → labs, offices → residential, older stock).
- Announcement of two permanently lower multipliers after 2026 (as previously signalled) becomes firm commitment.
- Possibly a “conversion relief” or reduced rate for buildings that undergo adaptive reuse / meet certain ESG thresholds.
- Landlords who invest in refurbishment or upgrade get a temporary business-rates holiday or accelerated deduction to incentivise activity.
Implications for the industry:
- Decisions to repurpose or refurb older stock become more viable financially (less tax drag).
- Landlords with value-add strategies can regain traction, pushing occupancy and rental growth rather than purely yielding repositioning deals.
- Tenants may benefit from more flexible lease terms and an improved occupier environment.
3. Sustainability & ESG – Building performance, EPC standards, refits
Current context:
- The government has flagged commitment to net-zero and regulatory tightening around the energy performance of buildings.
- For commercial property, the cost of upgrades and compliance is material, and portfolios with weak EPCs face risk of obsolescence.
Best-case scenario for property:
- The Budget includes a refurb-upgrade fund or tax credit for landlords upgrading properties to higher EPC ratings (say C→B or B+).
- More explicit transition roadmap with realistic phasing (e.g., commercial stock EPC C by 2030, with interim milestones) rather than cliff-edge deadlines.
- Possibly low-interest financing or guarantees (via public-private sector) for retrofit works – especially for secondary assets.
- Clear guidance on what “good” looks like for ESG/green leases, reducing regulatory uncertainty.
Implications for the industry:
- Upgrading becomes a value-creation lever rather than a cost-only burden.
- Secondary assets can be repositioned and become competitive, reducing vacancy/leasing risk.
- Tenant demand improves for better-quality, sustainable buildings, enabling landlords to command premium rents or lower incentives.
4. Planning, infrastructure investment and regional property markets
Current context:
- The new government has emphasised growth, regional development, housing supply and reforming the planning regime.
- Commercial real estate in the regions and outside London may benefit from growth tailwinds if policy supports it.
Best-case scenario for property:
- Budget commits to significant infrastructure investment, especially in regional hubs, logistics, life-sciences clusters and transitional areas (office → labs, industrial).
- Faster planning reforms: incentives for brownfield/under-used stock regeneration, and metrics/lanes to expedite adaptive-reuse of commercial property.
- Possibly tax-incentivised investment zones in key regional locations (where development risk is higher currently).
- A subtle shift of investor capital into “place-making” opportunities, rather than just prime core assets in London.
Implications for the industry:
- Regional markets get a shot in the arm: higher occupier demand, better prospects for yield-compression and capital growth.
- Developers and investors in adaptive-reuse benefit.
- Risk of over-concentration in London may reduce as capital flows diversify.
5. Housing market interaction & home-ownership driver
Current context:
- Residential policy may change stamp duty, property taxes, incentives which indirectly affect investment capital and dynamics of landlords/developers.
Best-case scenario for property (indirectly):
- Stamp duty reforms: e.g., an incremental reduction or shift to a simpler property tax, which boosts transaction volumes and improves liquidity.
- A commitment to build more homes, especially via mixed-use regeneration, which supports commercial property occupier markets (retail, leisure, amenities) and investor confidence.
- Rental market stability: policy that retains a viable private rented sector (PRS) encourages institutional investment in property rather than pushing capital away.
Implications for the industry:
- Higher transaction volumes improve exit/liquidity options for real-estate players.
- Mixed-use regeneration enhances assets by bringing amenities, tenants and value uplift.
- A thriving PRS means institutional real estate remains attractive and diversified.
What “success” looks like for commercial property in the 12–24 months post-Budget
In this best-case scenario, we would expect to see:
- Investment volumes pick up from the subdued H1 2025 baseline.
- Secondary asset discount narrows as refurbishment becomes economically viable.
- Adaptive-reuse deals accelerate (office to labs, to residential, to industrial).
- Regional markets show stronger performance, not just London prime.
- ESG and building-performance upgrade activity becomes mainstream rather than niche.
Risks & caveats (even in best-case)
- Even in a “best-case”, macro-headwinds (interest rates, inflation, global growth) remain outside the Chancellor’s direct control and will continue to pressure yields and valuations.
- Phasing and implementation matter: If tax or regulatory reliefs are promised but delayed, investor confidence may still stall.
- Secondary and tertiary stock remains vulnerable; best-case reliefs may help but won’t instantly transform economics.
- Policy signals matter: If the government signals heavier late-cycle tax burdens, even a best-case relief for property could be offset by fear.
Conclusion
The upcoming Budget offers a meaningful opportunity for the commercial property industry to move from uncertainty into proactive repositioning. In the best-case scenario, policy levers align to reduce tax shock, lower structural cost burdens, incentivise sustainability and unlock regional/refurbishment opportunity. We’ll update next month to review whether the best case transpired!
