UK commercial investment volumes and values are set to improve following the Bank of England’s first base rate reduction in August, according to Savills. The international real estate advisor’s latest Market in Minutes report reveals that cross-border investment into UK commercial property reached $14bn in the first half of 2024, outpacing both the USA and other European nations.
While some investors may remain cautious until the new government’s first budget in October, Savills notes that the recent interest rate cut, coupled with growing confidence in the UK’s economic fundamentals, has created a turning point. This is likely to lead to increased capital deployment in the fourth quarter of 2024.
The average UK prime commercial property yield remained stable at 6.07% in July, according to Savills. However, the firm anticipates yield hardening from Q4 2024 following a predicted further 25 basis point interest rate cut in November and the expectation of additional cuts in 2025.
“We are seeing rising confidence in the UK’s economic fundamentals, which should drive tenant demand and feed through into yield hardening from the end of the year,” said James Gulliford, joint head of UK commercial investment at Savills. He noted that, for the first time since 2017, all major MSCI average rental growth indices are showing positive year-on-year growth, with a significant increase in retail rental values.
Mat Oakley, head of UK and European commercial research at Savills, added that the UK’s renewed focus on supporting economic growth is a positive strategy, though reversing the macroeconomic trends of recent years will be gradual. “The UK potentially looks more politically stable now than it has for a long time, and in a European context, its real estate now looks cheap,” Oakley said, suggesting that international investors may soon see the UK as a more attractive investment opportunity.