Commercial Tenant Risk Assessment: Winners and Losers in the AI Revolution
This article was first published in Property Investor News, June 2025
Stating the obvious, the world is pretty uncertain at present! Because of this, and because commercial property tenants are businesses, it’s increasingly important to be diligent about your tenant choice. We’re not just talking about economic cycles anymore – we’re dealing with artificial intelligence (AI) that’s reshaping entire industries, consumer habits that have been turned upside down, and business models that are likely to become obsolete overnight.
The key to great tenant selection is operate in a niche (location / sector / strategy) where you have more choice of tenants. This is a highly strategic decision that starts well before you have even bought your first property – ultimately supply and demand is the cornerstone of successful commercial investing.
High-Risk Tenant Categories to Approach with Caution
Warning signs of vulnerable tenants could include:
- over-reliance on routine tasks
- lack of personal relationships
- high dependency on physical product sales
- resistance to technology adoption
I’ve had a go at guessing some business that may start to suffer as a result of technological changes. And in doing this, I also asked Chat GPT (we may as well embrace this changing world!) – so let’s look at what we jointly came up with!
- Discretionary Spend Retailers
The classic risky tenants are discretionary spend retailers. These are businesses selling things people want rather than need, and (other than in very niched locations) they are often the first to struggle during tough times.
These can include fashion boutiques, some electronics stores, gift shops, luxury goods retailers, and anything that relies on impulse purchases. When money gets tight or people change their shopping habits, these businesses are often the first to feel the pinch. The pandemic taught us that people can live quite happily without browsing shops for entertainment. Many discovered that online shopping wasn’t just convenient – it was often cheaper, offered more choice, and didn’t require finding a parking space.
- Travel Agencies and Traditional Tourism Services
Whilst physical travel agencies are becoming rare, the survivors are mostly serving very niche markets or older demographics.
- Traditional Banking and Financial Services
Bank branches are closing rapidly – online banking and AI-powered financial services are making physical branches largely redundant, although shared ‘banking hubs’ are starting to appear on our high streets.
Insurance brokers, mortgage advisers, and financial consultants who rely on face-to-face meetings are also under pressure. Consultations can take place online, and AI will increasingly provide personalised financial advice.
- Print Media and Traditional Publishing
Newspapers, magazines, and book retailers are fighting a losing battle against digital alternatives. Local newspapers are particularly vulnerable. Print shops and copy centres are also feeling the squeeze as businesses go paperless and home printing becomes more sophisticated.
- Traditional Retail Categories
Music and video stores are practically extinct, killed off by streaming services, and bookshops are struggling against Amazon and e-readers. Even seemingly stable retailers like toy shops are under pressure from online alternatives and the rise of digital entertainment.
- Data Processing and Administrative Services
Businesses that primarily process information, handle routine paperwork, or manage simple administrative tasks are sitting ducks for AI replacement. This includes basic bookkeeping services, data entry companies, simple legal document preparation, and routine customer service operations.
- Traditional Professional Services
Estate agents are already feeling the pressure from online property platforms and AI-powered valuation tools. While they’re not disappearing entirely, their role is changing rapidly.
Similarly, basic legal services, particularly conveyancing and simple contract work, are being automated and surely this will only increase?
- Routine Healthcare and Diagnostic Services
While healthcare remains essential, some aspects are becoming automated. Basic diagnostic services, routine health screenings, and simple consultations are increasingly being handled by AI-powered tools and telemedicine platforms.
- Traditional Education and Training
Training centres offering basic computer skills, simple language courses, or routine professional development are being replaced by online alternatives and AI-powered learning platforms.
- Manufacturing and Production Support
Businesses supporting traditional manufacturing – tool suppliers, basic engineering services, and routine maintenance operations – are under pressure as automation reduces the need for human intervention.
Resilient Tenant Categories
Ok, now let’s look at where there may be resilience amongst tenants, and where there could be fantastic opportunities to establish and investing niche. Because there is always a ying to every yang, and where there are losers there are also winners!
- Essential Healthcare Services
People will always need healthcare, and many services simply cannot be delivered remotely or automated effectively.
GP’s, dentists, physiotherapists, opticians, and specialist medical consultants remain essential. Veterinary services appear particularly robust.
Mental health services are experiencing growing demand, and these inherently require human interaction. Aged care facilities and services are demographic goldmines as populations age.
- Hands-On Professional Services
Accountants who provide comprehensive business advice (not just basic bookkeeping), solicitors handling complex legal matters, and financial advisers offering genuine expertise rather than just product sales are likely to remain valuable.
The key is complexity and personal relationships. AI can handle routine tasks, but it can’t replace nuanced professional judgement and personal trust.
- Essential Maintenance and Repair Services
Plumbers, electricians, and other tradespeople are AI-proof for the foreseeable future. These jobs require physical presence and problem-solving skills.
Appliance repair, heating and cooling services, and general maintenance contractors fall into this category. As things become more complex and interconnected, skilled technicians are likely to become more valuable, not less.
Cars are also becoming more complex and need specialist mechanics. Electric vehicle charging stations and related services represent growing opportunities as this sector transitions.
- Food and Beverage (But Choose Wisely)
Supermarkets and grocery stores are recession-proof and largely Amazon-proof, despite the rise in online food shopping.
Butchers, bakers, and specialty food retailers serving genuine needs and focusing on quality and freshness rather than luxury wants can also be excellent tenants.
Similarly, cafés and restaurants serving essential worker markets – near hospitals, offices, or transport hubs – tend to be more resilient.
- Personal Care Services
Hairdressers, barbers, beauty therapists, and massage therapists provide services that inherently require human interaction and physical presence. Skilled practitioners are likely to remain in demand.
- Childcare and Education Services
Quality childcare is essential for working parents and cannot be automated. Nurseries, after-school care, and specialist educational services addressing learning difficulties or providing personalised tutoring remain strong.
The "Maybe" Category: Tenants That Could Go Either Way
There are some sectors that will need to adapt and change to remain relevant. I anticipate that where these tenants innovate and offer experiences, interaction, a sense of community and the personal touch, they could thrive in the next few years. But others who rest on their laurels have the potential to become less relevant and fade away.
- Fitness and Wellness Services
Gyms and fitness centres faced massive challenges during the pandemic, but many have adapted. The key seems to be whether they offer something genuinely unique – personal training, specialised equipment, or a community.
Wellness services like physiotherapy, chiropractic care, and massage therapy are more resilient because they address specific health needs.
- Professional Services Adapting to Technology
Some professional services are successfully integrating AI and technology rather than being replaced by it.
- Retail and Leisure with Strong Experience Elements
Shops that combine retail with experience – think Apple stores where you can try everything, or bookshops with cafés and events – create reasons to visit beyond just making purchases.
- Specialised B2B Services
Business-to-business services that require deep industry knowledge, personal relationships, and complex problem-solving can remain valuable even as routine tasks become automated.
What are the Characteristics of Tenants Built to Last?
It’s the responsibility of every landlord now, not just to check the current financials of their tenants, but to check out indicators of future resilience. These can include:
- A Strong Problem-Solving Focus
Businesses that solve complex, varied problems requiring human judgement and creativity are more likely to survive and thrive.
- Strong Local Community Connections
Tenants who are integral parts of their local community – whether through services, employment, or social connections – have natural protection against digital disruption.
- Adaptability and Innovation
Businesses that have already demonstrated ability to adapt to changing circumstances and embrace new technologies are more likely to continue evolving successfully.
- Essential Service Provision
Tenants providing services that people genuinely need, regardless of economic conditions, are likely to offer the most stability.
- Niche Locations
Tenants in locations with great demographics, high tourist traffic and specific reasons to visit are likely to buck the general trends.
- In-Person Experiences
Experiences – including sport and leisure – that can’t be replicated online are likely to gain strength. After all, we are wired for human connection, and this desire is likely to get stronger in an increasingly digital age.
Conclusions - Building an AI-Proof Portfolio
My view is that diversification is the key to building an AI-proof property portfolio. This is about making sure that you don’t put all your commercial property eggs in one basket, for example, mixing essential services with carefully selected discretionary tenants, but weighing your portfolio towards the resilient categories.
It is also about choosing properties that can be easily adapted for different uses. Flexible spaces with good infrastructure can accommodate changing tenant needs. Ultimately, multiple exits are key in commercial property selection.
An understanding of local demographics is also essential. For example, an aging population might make healthcare tenants more valuable. A young, tech-savvy area might support innovative service providers but may be hostile to traditional retailers.
It’s also important to consider, not just current profitability, but long-term sustainability. A tenant paying slightly lower rent but offering genuine security might be worth more than a high-paying tenant in a vulnerable sector.
The commercial property landscape is being reshaped by forces beyond traditional economic cycles. AI, changing consumer behaviour, and demographic shifts are creating winners and losers in ways we’ve never seen before.
The smartest commercial property investors are those who recognise that tenant selection has become as important as location selection. You’re not just renting space – you’re betting on business models, industries, and the fundamental question of what humans will still need and want in an AI-powered world.
Final Thoughts
UK shopping centres in 2025 present a market of extremes. Prime, well-positioned centres that have successfully evolved into mixed-use, experience-led destinations continue to perform strongly. At the other end, secondary and tertiary centres trading at distressed prices offer potential opportunities for investors with the vision and operational expertise to implement fundamental change.
The key to successful investment lies in seeing beyond traditional retail metrics. The most promising opportunities are not those that can recapture retail’s glory days, but rather those that can be transformed into relevant, mixed-use destinations that serve their communities in diverse ways.
For investors willing to undertake this complex challenge, certain shopping centres represent one of the few genuine value propositions at the moment. However, this opportunity comes with substantial risk, requiring both financial resources and specialised expertise to navigate successfully.
The shopping centre is not dead, but it is evolving into something fundamentally different – less retail-centric, more experience-focused, and increasingly integrated with other uses. Those who can facilitate and capitalise on this evolution may find significant rewards in a sector many have written off as obsolete.
