The End of an Era? Part 2: Potential Consequences of the Upward-Only Rent Review Ban

The proposed abolition of upward-only rent reviews is more than a technical adjustment; it is a move that could trigger a fundamental realignment of the UK commercial property market.

By removing a key pillar of income security, the ban may force a systemic repricing of risk, leading to a cascade of consequences for landlords, investors, and tenants alike.

This article examines the potential impacts, exploring how market participants might adapt and how the very structure of commercial real estate could be reshaped.

The Landlord and Investor Conundrum

For decades, the UORR clause has been a bedrock of institutional property investment, providing a guaranteed floor for rental income that is highly prized by risk-averse investors, such as pension funds. The ban directly challenges this foundation, introducing significant uncertainty into financial models. It is unlikely that landlords and investors would passively absorb this new risk.

One possibility is that they will respond by systematically re-engineering their leasing strategies. This could manifest in several ways:

1. A Shift to Higher Initial Rents: To compensate for the potential of future rental decline, landlords may seek to front-load their returns by demanding higher "Day One" rents.

2. A Move Towards Shorter Lease Terms: The traditional long-term lease could become less attractive. We may see a pronounced shift in the market towards shorter terms, allowing landlords to reset terms more frequently.

3. A Preference for Fixed or Indexed Rents: There could be an increased preference for lease structures that fall outside the ban's purview, such as those with fixed annual uplifts or rental increases explicitly linked to an inflation index.

   
   

This erosion of long-term, stable income streams could also alter the investor landscape, making the asset class less attractive to traditional institutional capital and potentially accelerating a structural shift towards more opportunistic, value-add players.

A Double-Edged Sword for Tenants

For tenants, the proposed ban appears to be a victory, offering protection from unsustainable rent hikes during economic downturns. However, these newfound protections may not come without a cost.

As landlords move to de-risk their investments, tenants could face a series of trade-offs.

The most immediate might be the potential for higher entry rents and demands for larger rent deposits. Furthermore, while the rent review clause may become more flexible, landlords could seek to regain control in other areas of the lease, such as rights to assign or sublet, and the inclusion of break clauses.

The Great Accelerator: A Catalyst for the Flex Market?

Perhaps one of the most significant potential consequences of the UORR ban could be its role as a powerful catalyst for the rise of flexible workspace. The ban could converge several powerful trends already in motion.

• First, it could make the traditional lease a riskier proposition for landlords. The traditional five-yearly rent reviews can be a gamble in volatile markets. This may encourage the provision of stepped rents to mitigate uncertainty.

  
  

• Second, the market is already undergoing a demand-side revolution, with occupiers prioritising flexibility, reduced liability, and hospitality-led services, all core tenets of the flex model. This may encourage further collaboration with landlords and flex providers to diversify income.

  
  

• Third, landlords are already being forced to respond, with a growing trend of creating their own in-house flex brands dubbed "brandlords" to meet occupier demand. Landlords that embrace change will be proactive in offering the flexibility that occupiers seek by providing their own flexible solutions.

Up Next: The Upward-only Rent Review Ban - A Spectrum of Concern and Caution

The upward-only rent review ban could act as a powerful push-and-pull factor, driving both landlords (seeking to avoid regulatory uncertainty) and tenants (seeking proven flexibility) away from the traditional lease and towards the flex ecosystem.

It could serve to accelerate a structural transformation that is already well underway, cementing flexible workspace not as an alternative niche but as a mainstream component of the commercial property market.