From busy high streets to residential home offices, rising rents are quickly becoming a silent threat to UK businesses.
The hike in rental costs – once seen as a residential issue – is now chipping away at the backbone of the country’s economy: small and medium-sized enterprises (SMEs).
According to the latest data from the Office for National Statistics (ONS), average UK rents climbed by 8.1% in the year to February 2025, reaching £1,326 per month. Although slightly down from January’s 8.7%, the trend remains deeply troubling – especially when compared to the record 9.1% spike seen in March last year.
A Patchwork of Pressure Across The Country
The rent squeeze isn’t uniform. In London, monthly rents have hit an eye-watering £2,235 – up 9.9% year-on-year. Meanwhile, areas like Yorkshire and The Humber are seeing slower growth (4.8%), but even traditionally affordable regions such as the North East (£715/month) are under persistent upward pressure.
Elsewhere, Wales recorded the steepest climb among UK nations, with an 8.5% rise pushing average rents to £785. Scotland’s slower growth rate of 5.8% is partially the result of rent caps and other tenant protections – but these apply only to in-tenancy hikes, and do little to stem broader market inflation.
What’s Driving the Increase?
A number of factors are driving up rental costs:
High demand: With home ownership remaining difficult to achieve for many, more people are turning to rentals – fueling competition.
Limited supply: A lack of new rental properties is pushing prices higher.
Landlord behaviour: Some landlords are hiking rents to offset rising mortgage rates or in anticipation of selling. With no rent controls in England, there’s little to curb aggressive pricing.
It’s not just rental prices heading north. House prices are also on the rise.
As of January 2025, the UK-wide average hit £269,000 – up 4.9% year-on-year – with Northern Ireland seeing the biggest jump (9.0%).
Impact on Business: The Cost of Staying Put
For many UK businesses, rising rents aren’t just a line on the balance sheet – they’re a full-blown crisis. SMEs are particularly vulnerable, with higher rents forcing them to change locations, scale back operations or close altogether.
Among the most affected are independent retailers, cafés, and creative studios – especially those based in spaces like railway arches. Some tenants in these arches have reported rent hikes of up to 400%, an increase that few small businesses can absorb.
Here’s how it’s playing out:
- Operating costs soar: Rent increases are squeezing margins thin.
- Closures rise: Some businesses simply can’t stay open.
- Jobs are lost: Downsizing and closures mean layoffs.
- Growth stalls: Expansion plans are shelved in favour of survival.
- Competitiveness suffers: To cover costs, businesses raise prices – risking customer loss.
What’s the Government Doing? Not Much – Yet
Despite the crisis, the UK government has ruled out introducing rent controls. Legally, landlords can only raise rent at the end of a fixed-term tenancy or with tenant agreement – but in a competitive market, few tenants feel they can say no.
The Labour Party’s Renters’ Rights Bill may improve security for tenants, but it stops short of tackling the root causes of rent inflation.
In the meantime, businesses are left to fend for themselves. Many are trying to negotiate more favourable lease terms, cut costs elsewhere, or shift to remote-first models. Some are seeking tax relief to soften the blow. But for many, those measures aren’t enough.
Finding Resourceful Work Arounds
Interestingly, one indirect beneficiary of the rent rise is the self-storage sector.
Now valued at over £1 billion and growing 6.6% annually, storage is becoming a lifeline for space-strapped businesses and households alike. With over 2,000 facilities nationwide, it’s fast becoming the UK’s off-site solution of choice.
This is especially true in areas where land is expensive, as more companies look for ways to save space. Self-storage in London, for example, is booming.
On a more grassroots level, the rising cost of living – rents included – is also fueling the rise of the side hustle. As people look for more ways to earn money, research shows that 66% of Brits now run side projects to top up their income.
Most side-hustlers make up to £500 a month and dedicate under 10 hours a week – with these small jobs keeping the economy rolling.
The Bottom Line
The UK’s rental crisis is no longer just a residential issue – it’s changing the commercial landscape too.
While rent growth may be slowing slightly, the damage is ongoing. For small businesses, especially, the cost of space is increasingly unsustainable.
Without intervention – be it through policy, investment in affordable commercial space, or meaningful support for SMEs – the rent rise could spell more than discomfort. It could strip the UK of the independent businesses that give it life.