The UK’s commercial real estate market is showing signs of recovery, outpacing other European markets that are still struggling to bounce back from a two-year downturn. Deal volumes and property values in the UK have increased in the first half of 2024, according to market data. In contrast, Germany and France, Europe’s largest markets after the UK, have seen slower growth in dealmaking and property prices.
Industry experts attribute the UK’s faster recovery to factors such as political stability post-general election, stronger economic prospects, rising rents, and a more moderate increase in prices compared to the period between Brexit and the market peak in 2022. Mark Ridley, chief executive of Savills, noted that the UK has been the quickest to recalibrate, although uncertainties remain about the extent and speed of the recovery.
Despite a 25% decline in commercial real estate values across Europe since 2022, prices in the UK have risen by about 1.4% in the first half of 2024, surpassing France and Germany. Transaction volumes in the UK have also seen a 7% increase, with €26bn worth of properties changing hands, while volumes in continental Europe have remained flat.
The UK market’s resilience in the face of the European Central Bank’s interest rate cuts in June indicates a positive trajectory towards recovery. Ben Sanderson, managing director of real estate at Aviva, one of the UK’s largest institutional real estate investors, expressed confidence in the market’s turnaround, citing ongoing investments in the sector.
However, the recovery in the UK real estate market is not uniform across all sectors. While prices for warehouses, residential properties, and hotels have shown modest improvements, office buildings continue to experience steep declines in value. The first half of 2024 marked a challenging period for the UK office market, with minimal transaction activity and growth driven by sales of apartment buildings, student housing, and hotels.
Investors are adopting a cautious approach, focusing on specific sectors that show promise for growth. Traditional real estate sectors like office, retail, and industrial are still reporting annual declines in dealmaking across Europe. Major buyers in the European real estate market include US private equity groups Blackstone, Ares, and KKR, with Blackstone leading investments in the UK, particularly in new homes, hotels, logistics warehouses, and luxury retail properties.
Blackstone’s emphasis on sectors like logistics, residential, leisure, and data centers reflects the current trends in occupier and investor demand. Large transactions in the UK, such as LondonMetric’s acquisition of LXI, and equity raises by listed landlords like Segro, Unite Students, and GPE, indicate a growing confidence in the market’s recovery potential.
The UK property market’s close ties to current market conditions enable quicker repricing compared to other European markets, positioning it for a more rapid recovery. As the market continues to evolve, investors and industry players are closely monitoring trends and opportunities to capitalize on the shifting landscape. Stay informed with free updates by signing up for the UK property myFT Digest, delivered directly to your inbox.
