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The UK’s commercial property market is starting to recover faster than the rest of Europe from a severe two-year recession driven by high interest rates.
Market data shows that both transaction volumes and property values in the UK increased in the first half of 2024. In Germany and France, the two largest European markets after the UK, there was no increase in transactions and prices rose slightly over the period.
Industry executives and brokers said the UK had benefited from expectations of political stability following the general election, a stronger economic outlook, rising rents and a more moderate rise in prices between Brexit and the market peak in 2022.
“The UK is probably the market that is rebalancing the fastest,” said Mark Ridley, chief executive of Savills, which advises on commercial transactions. “What is uncertain is how fast and how far the recovery goes.”
Commercial property values have fallen by almost a quarter across Europe since their peak in 2022. But prices rose by about 1% in the first half of the year, according to Green Street’s index. The UK is ahead of France and Germany, with a 1.4% rise.
According to MSCI, trading volumes in the UK rose 7%, with €26 billion worth of property traded, while across the continent, trading volumes were flat.
There are signs that UK markets are headed for a faster recovery, despite the European Central Bank cutting rates in June, two months ahead of the Bank of England.
“We see the market starting to turn around,” said Ben Sanderson, managing director of real estate at Aviva, one of the UK’s largest institutional property investors. He manages around £50 billion in real estate. “We’ve been buying that story for some time.”
The new recovery reveals that some property types are in greater demand than others.
According to Green Street’s European index, prices for warehouses, residential property and hotels have already improved slightly over the past year. Other sectors, including office buildings, are still seeing sharp declines in value.
The first half of 2024 was the worst period for the UK office market since MSCI began tracking it in 2001, with just €4.2 billion in deals. Instead, growth came from apartment building, student accommodation and hotel sales.
Sanderson warned that he expects the recovery to be “K-shaped,” with some properties continuing to decline in value while others recover.
Investors are being very careful about what they buy. According to MSCI, the traditional major real estate sectors (offices, retail and industrial) are all reporting year-over-year declines in transactions across Europe.
According to MSCI, the biggest buyers of European real estate in the first half of the year were large U.S. private equity firms Blackstone, Ares and KKR.
Blackstone said it had invested about $3 billion in European real estate, excluding debt investments, with the largest portion in the U.K., where it has struck a major deal with Vistry for new homes, as well as buying a hotel chain, a logistics warehouse and a high-end retail block on New Bond Street.
James Seppala, Blackstone’s head of European real estate, said the firm is focusing on “logistics, residential, leisure and data centres” as these sectors are “benefiting from robust occupier and investor demand”.
UK trading has been fuelled by some large-scale deals, including LondonMetric’s acquisition of LXI. Other listed landlords, including Segro, Unite Students and GPE, have raised capital this year to fund new investments as they look to capitalise on the ongoing recovery.
Property valuations in the UK are more closely linked to current market conditions than in other parts of Europe, which generally results in market prices being revalued more quickly.
