V I E W P O I N T S

Spring 2025 | Article 02/04

Sector overview

With uncertainty persisting about the shape of the UK’s economic recovery and the pace of interest rate movements over the next 12 months, what does this mean for investment into UK commercial real estate in 2025? We break down, sector by sector, the outlook for 2025.

RETAIL

“UK retail investment volumes are likely to rise on 2024 levels, driven by continued demand from investors for prime retail assets, across all retail subsectors.”

Richard Jones, Director, Retail

Illustration of various commercial buildings on a busy high street
“Retail Parks will remain in high-demand throughout 2025 as they provide strong fundamentals including high footfall and low vacancy rates. Total returns for this year are forecast to reach 10.7, amongst the highest across the retail sector. Rents are forecast to see a modest rise of only 2.0%, driven by a limited supply of stock in the leasing market.”
“Prime & super-prime Shopping Centres will continue to attract interest from investors this year, and it’s likely we will see more institutional and REIT interest in the sector than we have seen for the last few years.

As footfall continues to increase in the capital, driven by the return of international tourism and an expected increase in the number of office workers returning to the office, Central London shops will be in demand particularly in luxury locations.”

  • Director
  • Market Intelligence

INDUSTRIAL

“The resilience of the UK industrial and logistics sector means it will remain an in-demand asset class for investors, with investment volumes expected to exceed last year's levels.”

David Willmer, Principal, Industrial

Illustration of warehouse workers with a forklift
“Urban logistics will remain an attractive asset class driven by consumer behaviour. This will be boosted by the forecast growth in online shopping combined with customer demand for rapid delivery of goods.   

Investment in data centres will increase, driven by the huge growth in data demand. Major tech companies (Meta, Microsoft, Amazon, and Google) are investing billions into building hyper-scale data centres. But with such strong demand, demand which is only anticipated to ramp up further, many institutional investors are entering the sector or committing high levels of capital to increase their exposure.”
“As of early 2025, the UK's industrial investment market exhibited signs of recovery and growth following recent economic challenges and market adjustments. Recent analysis indicates a positive shift in investor sentiment towards the industrial sector throughout 2025 and beyond.”

  • Director
  • Market Intelligence

OFFICES

“Key indicators suggest the office sector is approaching a critical turning point in 2025, marking a significant shift in market dynamics, demand trends, and overall industry performance.”

Paul Broad, Principal & Managing Director, Offices

Illustration of four people sitting in chairs with mobile devices
“Strong fundamentals including robust tenant demand, an uptick in RTO policies and strong rental growth for best in class space, boosted by a lack of supply, underpin the case for increased confidence in the office sector.

Prime office yields will remain at higher than average levels over the short term, influenced by the risk free rate remaining elevated. Regional office markets, in particular, will offer relative value when compared to other sectors.”

  • Principal & Managing Director
  • Offices
“Whilst best in class assets will remain at the top of the shopping list, acquisitions of secondary assets and value-add opportunities with strong fundamentals, will see growth. Addressing obsolescence, whilst keeping development costs controlled will drive growth in retrofitting, refurbishment and change of use opportunities across the UK.

With the economic outlook for 2025 remaining unclear, some sales will be brought forward with owners seeking an earlier exit. We expect to see an increase in sales stock from Q2 onwards.”

  • Director, Offices Insight
  • Market Intelligence

BTR

“Following a record year for investment volumes in 2024, BTR will continue to benefit from structural tailwinds in 2025, as investors reposition toward Living sectors.”

Josh Rose-Nokes, Director, Market Intelligence

Illustration of three buildings
“We expect to see a pickup in new starts and the resumption of stalled projects in 2025 as a more benign construction cost environment encourages developers to move forward set especially given the low level of starts last year. 

Rental growth will moderate relative to the very high levels that we have seen over the last few years but the imbalance between supply and demand in the rental sector will continue to underpin healthy rental growth. The regulatory changes (Renters Rights Bill) coming in and increased Stamp Duty Land Tax for Buy-to-let may well contribute to reduction in supply in the non-institutional Private Rented Sector.

Forward fund and forward purchase will remain the main routes for deploying capital but we expect to see a continuing of the theme of more operational assets trading this year. Some of the ‘first generation’ BTR investors/developers are looking to exit stabilised assets and recycle capital.”

AFFORDABLE HOUSING

“Affordable housing delivery is a key societal issue in the UK and at the front of the government’s agenda.”

Helen Collins, Principal, National Head of Affordable Housing

Illustration of a planned community

“As we wait for the spring spending review, we echo the asks of trade bodies for a stable and supportive investment platform for affordable housing and living sector tenures. A ten year rent settlement at CPI +1%, re-introduction rent convergence, a strong grant settlement, and access to the building safety fund will help support new homes supply and existing stock investment. Targeted tax incentives – SDLT reform for smaller sites, and mandating mixed tenure on large sites including older persons, BTR and affordable housing will create the foundation of building diverse sustainable communities. 

In the short term we see greater interest from Housing Associations to partner with private equity and set up their own For Profit Registered Provider (FPRP) structures alongside ongoing interest from developers and investors and this is crucial to increasing delivery. This will see a continuation of the theme of partnerships between traditional Registered Providers (RP’s) and funds along with completely new entrants to the sector.

We expect to see an increase in activity in the acquisition of legacy stock (either Shared Ownership or Affordable/Social Rent) from Housing Associations by UK insurers and pension fund FPRPs. This will help to provide liquidity to the vendor RP’s which are facing pressures from the need to invest in existing stock to meet regulatory requirements while funding development programs. It gives the purchaser access to stabilised stock with index linked income streams which match long term liabilities.

Devolution has the potential to accelerate affordable housing delivery using regional spatial plans, Mayoral Development Companies, a greater role for local government pension schemes to invest in affordable housing and transport infrastructure led growth of new housing settlements."

  • Principal & Managing Director, Birmingham
  • Affordable Housing
Article contributors

  • Director
  • Market Intelligence

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