The United Kingdom continues to lead Europe as the premier destination for real estate investment, even as transactional activity has seen a recent dip. This insight comes from Cushman & Wakefield’s inaugural ‘Visions’ report, which provides a comprehensive look at the trends shaping the sector heading into 2025. The report highlights resilience and growth in key areas, including healthcare, hospitality, and retail, despite a broader slowdown in deal volumes over the past two years.
Office Spaces: A Global Leader
London’s office market stands out as the most liquid globally, with total returns for the sector hitting 1.5% by the third quarter of 2024—the highest in two years. Demand for premium office spaces has driven rental prices upward, with new or extensively refurbished properties accounting for 68% of leasing activity in London’s Big five and central markets in 2023. Prime city rents in central London are projected to grow by 4.4% annually through 2028, while the top 10% of rents are expected to surge by 7.6% each year.
Leisure and Hospitality: A Surge in Experience-Based Spending
The experiential leisure market has experienced explosive growth, with investments soaring 250% from 2018-2019 to 2022-2023, reaching £225 million. This surge is fueled by consumer demand for live sports,music events,and hotel stays,with spending on accommodations jumping 250% between 2023 and 2024. The sector’s diversification and adaptability have positioned it for continued success in the coming year.
Net zero Transition: A green Investment Boom
The U.K.’s ambitious goal of achieving net-zero emissions by 2050 is reshaping the real estate landscape. The report highlights that the U.K. is home to nine of the top 25 destinations for cleantech and GreenTech investment in Western Europe. Though, meeting new energy efficiency standards could cost up to £71 billion, presenting both challenges and opportunities for investors.
Environmental, Social, and Governance (ESG) strategies are gaining traction, with ESG-focused funds making up 23% of total real estate investments in the U.K. and Ireland in 2023—a significant jump from just 3% between 2015 and 2020. Funds raised for ESG-focused value-add strategies quadrupled from £1.1 billion to £4.3 billion annually during the same period, even as overall fundraising declined by 12%.
AI and technology: Reshaping the Market
Artificial intelligence is poised to transform the real estate sector, driving demand for data centers and enhancing decision-making processes. Automated Valuation Models and improved data accessibility are expected to streamline investments, offering investors more precise tools to navigate the market.
Looking Ahead: Optimism for 2025
Cushman & Wakefield remains optimistic about the future of the U.K.real estate market. As the economy transitions from inflation-driven challenges to growth-oriented opportunities, the firm predicts favorable conditions for investors in 2025.
“The past year has seen global instability and market fluctuations. However, with key set-piece policy developments, the continued agenda-dominance of ESG, technological advancements, and consumer recovery, we are positive about the market in 2025,” saeid Daryl Perry, head of research & insight at Cushman & Wakefield.
“Our analysis shows that the real estate sector will continue to adapt to ongoing structural changes, like AI, technology, decarbonisation, and societal and geopolitical fluctuations. No investment can be absent of risk, but with targeted data analysis, investors will be able to navigate challenges and capitalise on opportunities with positive impacts on reward and wider economic growth.”
What are the key trends shaping the UK real estate market heading into 2025?
Interview with Sarah Thompson, head of European Real Estate Research at Cushman & Wakefield
Archyde News: Thank you for joining us today, Sarah. The United Kingdom continues to be a top destination for real estate investment in Europe, even as transactional activity has slowed. Can you give us an overview of the key trends shaping the sector as we head into 2025?
Sarah Thompson: Absolutely, and thank you for having me. The UK real estate market has shown remarkable resilience, notably in sectors like healthcare, hospitality, and retail. While there has been a broader slowdown in deal volumes over the past two years, these sectors have continued to grow, driven by strong fundamentals and evolving consumer demands. our inaugural ‘Visions’ report highlights how these trends are likely to shape the market in the coming years.
Archyde News: London’s office market has been a standout performer, with total returns hitting 1.5% by the third quarter of 2024. What’s driving this growth, and how sustainable is it?
Sarah Thompson: London’s office market is indeed a global leader, and its liquidity is unmatched. The growth we’re seeing is primarily driven by demand for premium office spaces, particularly those that are new or have undergone extensive refurbishment. In 2023, these types of properties accounted for 68% of leasing activity in London’s Big Five and central markets. This trend is expected to continue, with prime city rents in central London projected to grow by 4.4% annually through 2028. The top 10% of rents could see even more significant growth, with annual increases of up to 7.6%.
Archyde News: That’s notable growth. What factors are contributing to this demand for premium office spaces?
Sarah Thompson: Several factors are at play. First, there’s a growing emphasis on quality and sustainability. Companies are increasingly looking for spaces that not only meet high environmental standards but also offer amenities that enhance employee well-being and productivity. Second, the shift towards hybrid working models has led to a rethinking of office space requirements. Businesses are now prioritizing flexible, high-quality spaces that can serve as hubs for collaboration and innovation. London’s status as a global financial and business hub continues to attract international investors and tenants, further driving demand.
Archyde News: Looking ahead, what challenges do you foresee for the UK real estate market, particularly in the office sector?
Sarah thompson: While the outlook is positive, there are challenges to consider. One of the main concerns is the potential for economic volatility, which could impact investment decisions and leasing activity. Additionally, the ongoing need for significant capital investment in refurbishing and upgrading older office stock to meet modern standards could pose a challenge for some landlords. However, those who can adapt and invest in high-quality, sustainable spaces are likely to remain competitive.
archyde News: what advice would you give to investors looking to enter or expand their presence in the UK real estate market?
Sarah Thompson: My advice would be to focus on sectors and locations with strong fundamentals and growth potential. The healthcare, hospitality, and retail sectors, such as, have shown resilience and are likely to continue performing well. In the office sector, prioritize premium, sustainable spaces in central locations like London, where demand is strongest. It’s also important to stay informed about market trends and be prepared to adapt to changing conditions. The UK market offers significant opportunities, but success will depend on strategic planning and a focus on quality.
Archyde News: Thank you, Sarah, for your insights. It’s clear that the UK real estate market remains a dynamic and attractive destination for investors, and we look forward to seeing how these trends develop in the coming years.
Sarah Thompson: Thank you. It’s an exciting time for the UK real estate market, and I’m confident that it will continue to offer strong opportunities for those who are well-prepared and strategic in their approach.
