The UK’s commercial real estate market is demonstrating a quicker recovery than its European counterparts after a challenging two-year downturn caused by high interest rates. Recent market data indicates that, in the first half of 2024, deal volumes and property values in the UK have increased, while Germany and France, the next largest markets in Europe, have struggled to gain traction.
Experts attribute the UK’s resilience to factors such as expectations of political stability following the general election, improved economic outlook, rising rents, and a more moderate price increase between Brexit and the market’s peak in 2022. Mark Ridley, CEO of Savills, noted that the UK has been the fastest to adjust, although there is still uncertainty about the recovery’s pace and extent.
Across Europe, commercial real estate values have dropped nearly 25% since their peak in 2022, but the first half of the year saw a slight increase in prices, rising about 1%, according to Green Street’s index. The UK outperformed France and Germany with a 1.4% gain, while transaction volumes increased by 7% to €26 billion in property deals, according to MSCI data. In contrast, transaction volumes in continental Europe remained flat.
The recovery in the UK is not uniform across all property types. Warehouses, residential properties, and hotels have seen modest price increases over the past year, whereas office buildings continue to experience significant declines in value. Ben Sanderson, managing director of real estate at Aviva, predicts a “k-shaped” recovery, where some property types rebound while others continue to decline.
Investors are being cautious in their acquisitions, with traditional real estate sectors—office, retail, and industrial—reporting annual declines in dealmaking across Europe, as per MSCI. Major US private equity firms, including Blackstone, Ares, and KKR, were the leading buyers of European real estate in the first half of the year. Blackstone alone invested around $3 billion in European real estate, with the UK receiving the largest portion.
The UK’s property valuations are more closely tied to current market conditions than those in other European countries, which typically allows for a quicker market repricing. As the UK moves through this early recovery phase, industry participants remain cautiously optimistic, closely observing the recovery’s pace and direction.
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