Last year saw the first signs of recovery in the UK real estate market following the downturn triggered by the global rise in interest rates. Commercial property capital values stabilised and then began to rise gradually as 2024 progressed, led by the retail and industrial sectors. At an all property level, the CBRE UK Monthly index recorded a total return of 7.7% for 2024, with capital values rising by 1.8%. UK real estate investment volumes also increased from £45bn in 2023 to £54bn last year. This was aided by a notable rise in investment during the fourth quarter of 2024.
While uncertainties remain around the pace of economic recovery and path for UK interest rates, the outlook for UK real estate investment is brighter than 12 months ago. This is reflected in responses to our 2025 European Investor Intentions Survey, which show an increased appetite among investors to transact in 2025. This is replicated among investors that are targeting the UK market. 98% of these respondents expect their organisations to acquire a similar or greater amount of real estate in 2025 relative to last year.
Figure 1: Expectations for purchasing in 2025 relative to 2024 (investors active in the UK)
Furthermore, 88% of investors targeting the UK expect to sell at least as much, if not more, real estate in 2025. This matters since an increase in the pool of both buyers and sellers is needed to facilitate greater liquidity. It also fits with the need among investors to refresh and reposition their real estate portfolios after a period of reduced market activity. As such, we expect more opportunities to be brought to market across all sectors as 2025 progresses.
This includes larger lot sizes, where depth of demand has been limited over the past two years. In 2024, there were just 11 deals in excess of £100m in Central London, compared to a longer-term annual average of around 40. Most of these larger deals (8) were in the second half of the year as a greater weight of capital emerged, and we know of several other large deals currently in the pipeline.
That said, there are still challenges for investment in the year ahead. While we perceive that the bid-ask spread for private real estate assets has narrowed, half of respondents are concerned about a mismatch in buyer and seller expectations, which suggests that price discovery will be ongoing in some parts of the market. Other top concerns are uncertainties around the geopolitical landscape and path for interest rate cuts in 2025. Yet Figure 2 shows that a third of investors believe the real estate market is already in recovery mode, while the majority expect the recovery process to have at least started by the end of 2025.