Closing the Chapter on 2024
Final Quarter Trends in UK Real Estate and What They Mean for 2025
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As we turn the page on 2024, there is renewed hope that nearing closing the chapter on a period marked by rising inflation and interest rates, that have dominated the global commercial real estate market for some years. Throughout the noise and nuance that remains in global markets, the UK Commercial Real Estate market has shown notable signs of recovery, with tailwinds emerging that position for an improving outlook in 2025.
A Resilient UK Economy laid the platform
The UK economy showed modest activity in the first half of 2024, with GDP growing by +0.8% in Q1 and +0.4% in Q2. The UK economy has stagnated in the second half of 2024, as reflected by the modest yet unexpectedly positive growth of +0.1% in Q4. This came amid ongoing weakness following October's budget and soft demand from abroad. Given the generally pessimistic outlook for global growth, the International Monetary Fund (IMF) has revised the UK’s growth forecast for 2025 to 1.6%, positioning it as the third-fastest-growing economy in the G7. Inflation continued to trend closer towards target rate throughout 2024 and early 2025, albeit a bumpy one, the path towards relative normality remains afoot, with the Bank of England passing on a 25 basis point rate cut at the February 2025 meeting.
This steady economic performance laid the foundation for a dynamic commercial real estate market, which experienced a solid recovery across multiple sectors.
Investment Activity Gained Momentum
In 2024, the UK’s commercial real estate market saw a significant rebound, with a total transactional volume of £46.6bn recorded; +21% more than 2023, although still 18% below the 10-year average. Cross-border investment was a key driver, with international capital contributing 45% of UK CRE volumes in Q4. The UK maintained its position as a top destination for global investment, trailing only the US, while London continued to lead as the most sought-after global metro for cross-border investments for the fifth year in a row.
Transaction Activity Across Sectors:
Office Activity Increasing
In Q4 2024, the West End saw £1.2bn in turnover across 35 deals, a 54.2% increase from the previous quarter, and close to the long-term average. This helped total 2024 investment reach £3.9bn, down 25.4% from the long-term average. The Q4 increase was driven by larger transactions, with deals over £100m totaling £0.4bn, up from £0.1bn in Q3 2024. Office investments in the City and Southbank focused on value-add assets, while core asset investments surged by 216.7% to £0.2bn, though they remain low due to reduced institutional investment in larger lots.
The South East office market saw an impressive boost in Q4, with investment rising +154% to £648m—the highest quarterly total in two years. In 2024, overall investment in the region reached £1.64bn, up +25% from 2023. Although still below the 10-year average, the +12% year-on-year increase in deal volumes signals growing confidence in the market, with 102 transactions completed throughout the year.
Industrial Sector Strong Finish
The industrial and logistics market, after a slow start, experienced a powerful finish to 2024. With £8.4bn invested, up +29% from 2023—the sector saw £2.5bn transacted in Q4 alone, marking the strongest quarter since Q3 2022. This surge was fuelled by heightened competition for prime assets and improved sentiment, setting the stage for continued demand in 2025.
Retail Investment Boosted by improved sector sentiment
Retail investment volumes saw significant momentum in Q4, with £2.9bn recorded in the quarter, the highest total of 2024. Retail warehousing dominated the activity, accounting for +58% of the deal volume, while shopping centres made up +33%. Retail investment for the year reached £2.0bn, with shopping centre deals driving the rise in average lot sizes to £74m, up from £38m in Q2.
Specialist Sectors Continue to Flourish
- Data Centres: The data centre sector enjoyed a strong year with £1.13bn in transactions, marking a 13.3% increase over the post-pandemic average. Vacancy rates tightened to 6.25%, with most upcoming projects already pre-let.
- Healthcare: Healthcare investments reached their highest levels since 2022, surpassing £3bn. The sector benefited from a range of deal structures, with investors seeking substantial net operating income, pushing transaction volumes higher.
- Life Sciences: The Golden Triangle (Oxford, Cambridge, London) saw consistent life sciences investment, totalling £622.53m in 2024, on par with 2023. Cambridge, in particular, led the charge with £192m transacted.
Occupier Market Shows Robust Activity
The occupier market in UK cities saw its strongest performance since 2019, with leasing activity reaching 1.6m sq ft in Q4 alone, bringing annual take-up to 5.6m sq ft, +18% higher than 2023. The industrial sector also saw a resurgence, with 35.7m sq ft of space leased, surpassing 2023 volumes by +19%.
The City & Southbank market maintained strong leasing momentum for the third consecutive quarter, with take-up rising 17.7% to 2.1m sq ft, 33.9% above the long-term average. Take-up exceeded the long-term average in the City Core, Clerkenwell/Farringdon, and Southbank Core, though it was 50.3% below average in Aldgate/Whitechapel. This performance boosted total 2024 take-up to 6.7m sq ft, a 4.0% increase from 2023 and 5.0% above the long-term annual average.
In retail, vacancy rates showed a slight improvement, dropping to 13.8% in Q4, with shopping centres seeing the most notable gains. This shift, coupled with the +1.2% rise in retail rents, signals a turning point in the sector’s recovery.
UK Industrial and Logistics occupier statistics for 2024 point to a return to pre-pandemic market norms. In the final quarter, occupiers signed just over 8m sq ft of floor space, bringing the full-year total to 35.7m sq ft (units 50,000 sq ft+). Take-up for 2024 surpassed 2023 volumes by +19% and was +4.3% ahead of the ten-year pre-pandemic average of 34m sq ft.
In the healthcare sector, statistics from our 2024 Care Home Trading Performance Index demonstrated strong and stable trading. All care average fees are up approximately 7% annually, whilst occupancies are trending at 88.8%, on par or above pre-pandemic levels.
Quarterly Insights Unveiled: Key Trends Shaping the Future of Real Estate
- Life Sciences and Repurposing: Cambridge was the standout market for life sciences investment, with £192m transacted in 2024. Life sciences venture capital funding in the UK reached £3.25bn—its second-highest level on record, however the number of completed deals has declined.
- West End Office Development pipeline falls short of demand: The under construction development pipeline decreased to 6.7m sq ft, following 506,213 sq ft of completions in Q4. Currently, 31.0% of the under-construction pipeline is pre-leased, and an additional 31,210 sq ft is under offer.
- Industrial Stock Delivery Slows: The slowdown in new industrial stock deliveries is expected to heighten competition and drive rental growth, especially for prime properties. As speculative space under construction dropped 10% in Q4, competition for available assets is expected to intensify.
- Retail Sales Bring Festive Cheer: Retail sales finished 2024 on a high, with £144bn spent in Q4, driven by strong consumer spending power. December alone saw £60bn in sales, with year-on-year growth of +3.5% in value and +2.9% in volume. This strong end to the year reflects rising disposable income and continued consumer resilience.
- Energy Shortages Delay Data Centres: Energy infrastructure shortfalls have led to significant delays in data centre projects, particularly in regions like West London. Lead times for new data centre projects have now stretched to over 10 years, highlighting the pressing need for more robust energy transfer solutions.
Looking Ahead for 2025
As we move into 2025, the UK commercial real estate market is on solid footing, supported by a more positive macroeconomic outlook and strong occupier demand in key sectors. The year ahead is set to see the UK continuing to attract robust demand from investors and occupiers. However, recovery remains uneven, with opportunities and insights remaining nuanced.
A substantial amount of capital is ready for deployment, and anticipated future interest rate cuts should create a more favourable investment environment, boosting confidence and activity. Debt origination is rising, and global CRE pricing is stabilising, signalling potential recovery.