UK real estate eyes potential market rebound in 2025

Cautious optimism set the tone at Bisnow’s recent Women Leading Real Estate event, with expectations of increased capital deployment and activity across UK property asset classes in 2025.

Cautious optimism set the tone at Bisnow’s recent Women Leading Real Estate event, with expectations of increased capital deployment and activity across UK property asset classes in 2025.

Analysis from CBRE’s UK Real Estate Market Outlook 2025 supports the view that the market is approaching equilibrium, with commercial property, in particular, now repriced and ready for investment:

‘It is becoming increasingly evident that the commercial real estate market reached a trough in 2024, and we expect the embryonic signs of a turning point to gather more strength in 2025. This, along with lower interest rates and lower costs of debt, will stimulate a pick up in investment in 2025 of around 15%.’

At Shoosmiths, we are observing continued improvement in market activity and sentiment.

The industrial and logistics sectors have experienced notable client activity, driving dealmaking for the firm’s real estate investment group during Q3 2024.

The living sector is also performing strongly, with the firm recently advising on major portfolio transactions, including supporting a joint venture between Invesco Real Estate and PLATFORM_ in the successful sale of an office-to-residential portfolio to LRC Group earlier in December.

The institutionalisation of the BTR and purpose-built student accommodation (PBSA) sectors in the UK continues to fuel strong investment flows. BTR recorded £800m in Q3 2024 — the second-highest Q3 performance of the past four years — while PBSA saw nearly £840m invested during the same period.

Shoosmiths’ real estate team has advised on several landmark deals across both sectors during the second half of 2024, including acting for the Housing Growth Partnership (HGP) on a joint venture with Watkin Jones to develop a £120m, 397-bed PBSA scheme in Stratford, East London.

The firm also supported HGP in forming a £150m venture with PLATFORM to deliver a 451-apartment BTR scheme in Leeds. This joint venture marks the first phase of PLATFORM_’s transformative 1.3 million sq ft mixed-use development on Sweet Street, part of the South Bank regeneration area in Leeds.

The growth potential of the BTR market took centre stage at the Bisnow event, where Berkeley Group outlined its plans for the sector. In a recent trading update, the developer revealed its strategy to deploy £7bn of free cash flow over the next decade, focusing on land investment, building its BTR platform, and returning value to shareholders — a significant commitment that further strengthens the UK BTR market.

Given the chronic undersupply of homes in the UK and the government’s commitment to delivering 1.5m homes over the next parliament, investor and developer attention is likely to remain focused on residential assets. Knight Frank’s latest European Living Sectors Investor Survey revealed that 41% of investors plan to increase their allocation to the living sectors over the next five years by between 40% and 100% of current capital invested — potentially unlocking €64bn of new capital.

One key takeaway from the Bisnow event was that the growth of the residential sector should not be considered in isolation. A significant portion of activity from 2025 onward will centre on large-scale regeneration schemes, with funders, investors, and developers pursuing integrated, mixed-use developments that combine residential, commercial, and working areas with leisure and experiential spaces designed to meet evolving social needs. This approach aligns with the government’s brownfield-first policy and focus on economic growth through urban revitalisation.

As speakers noted, challenges persist, particularly around planning, which remains one of the sector’s main hurdles. However, the government appears to be taking steps toward resolving these issues, unveiling proposed updates to the National Planning Policy Framework (NPPF) on 12 December 2024.

These proposals are now under consultation, but as highlighted through Shoosmiths’ involvement in the Radix Big Tent Housing Commission, improving the planning process is essential to accelerating housing delivery, infrastructure projects, and broader development efforts.

The funding landscape remains relatively restrictive, and while the outlook for UK inflation is uncertain, swap market pricing suggests the potential for three interest rate reductions by the end of 2025. Many in the real estate industry will closely monitor this trend, recognising that increased development and investment activity depends on further easing of credit conditions.

These challenges are not unique to the UK, but global investors and asset managers at the event acknowledged that the country remains a market leader in the global real estate sector. While recent political and economic turbulence may have temporarily weakened this perception, 2025 holds the potential for a period of renewed stability and growth in UK real estate.

As market opportunities emerge and clients seek to advance projects, it is crucial for the government to recognise that the industry has reached an inflection point. Unlocking its full potential requires a business environment that supports viability and cuts unnecessary red tape — enabling the transformation of the built environment, the delivery of new homes, and the realisation of much-needed economic growth.