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A new report has found that 70 per cent of UK commercial real estate (CRE) leaders are concerned about economic pressures, while tenant demands and sustainability expectations are driving unprecedented market shifts.
The report ‘Smart Moves: How Landlords and Tenants Thrive in the Evolving CRE Market‘ from intelligent building services provider, LMG, underscores the urgency for landlords to modernise and adapt, with two-thirds admitting they are not fully compliant with current regulations.
LMG’s research, based on insights from 50 UK CRE owners, highlights how evolving tenant priorities are redefining the market. Demand for hybrid workspaces, shorter leases, and eco-friendly features is outpacing traditional requirements. Two-thirds (66 per cent) of property owners are reconfiguring portfolios to serve the booming flex workspace market, while 42 per cent are upgrading assets to attract global headquarters tenants.
The report also sheds light on regulatory hurdles, with an estimated 80 per cent of London’s commercial buildings at risk of non-compliance under upcoming Minimum Energy Efficiency Standards (MEES) legislation. Despite full awareness of regulatory mandates, two-thirds of landlords remain unprepared, risking hefty fines and tenant dissatisfaction.
Tenant demands are not only driving operational changes but also reshaping the landlord-tenant dynamic.
Nine in 10 (88 per cent) landlords report that tenants are negotiating for greater operational flexibility, shorter leases, and enhanced workplace experiences to meet hybrid working needs. This evolution places increased pressure on landlords to deliver spaces that align with tenant values, from smart infrastructure to wellness-focused designs.
Meanwhile, market polarisation is accelerating. High-quality, sustainable office spaces are outperforming older properties, creating opportunities for landlords willing to invest. Retrofitting buildings with cutting-edge technology is proving crucial, with certifications like WELL2, NABERS and SmartScore providing clear pathways to tenant satisfaction and regulatory compliance. However, financial constraints and lack of expertise remain significant barriers for many property owners.
Mike Hook, Executive Director of LMG, commented: “As pre-pandemic leases expire, tenants are seeking higher quality spaces with advanced technology and sustainable design. The market is polarizing between those who adapt and those left behind. The message is clear: innovate or face obsolescence.”
He added: “Smart technology is no longer a luxury; it’s a necessity for creating resilient, tenant-centric spaces. Retrofitting existing buildings with advanced tech can unlock value while aligning with sustainability goals. This shift is not just about survival but about seizing market opportunities.”
