Stay informed with free updates
Simply sign up for the UK property myFT Digest — delivered straight to your inbox.
The UK commercial property market is starting to recover faster than the rest of Europe from a brutal two-year slump triggered by high interest rates.
Transaction volumes and property values in the UK rose in the first half of 2024, according to market data. In Germany and France, Europe’s largest markets after the UK, transactions failed to recover and prices rose slightly over the period.
Industry executives and agents said the UK has benefited from hopes of political stability after the general election, a stronger economic outlook, rising rents and a more moderate rise in prices between Brexit and the peak of the market in 2022.
“The U.K. has probably been the market that has recalibrated the quickest,” said Mark Ridley, chief executive of Savills, which advises on business transactions. “The uncertainty is how quickly and how far the recovery goes.”
Commercial property values have fallen by almost a quarter across Europe since their peak in 2022. However, prices rose by about 1 percent in the first half, according to a Green Street index. The U.K. outperformed France and Germany with a 1.4 percent rise.
In the UK, transaction volumes rose 7 percent, with €26 billion worth of property changing hands, according to MSCI, while volumes in continental Europe remained stable.
The signs that the UK market is heading for a faster recovery come despite the European Central Bank cutting interest rates in June, two months before the Bank of England did.
“We see the market starting to turn a corner,” said Ben Sanderson, chief executive of real estate at Aviva — one of the largest institutional investors in UK real estate, managing around £50 billion. “We’ve been investing in that story for some time.”
The nascent recovery does not reflect the fact that some types of real estate are in greater demand than others.
Prices for warehouses, residential properties and hotels have already improved modestly over the past year, according to the European Green Street Index. Other sectors, especially office buildings, continue to experience sharp declines in value.
The first half of 2024 was the worst for the UK office market since MSCI began tracking it in 2001, with just €4.2 billion in transactions. Growth has instead come from sales of apartment buildings, student housing and hotels.
Sanderson warned that he expected the recovery to be “K-shaped,” with some properties continuing to decline in value while others recovered.
Investors are very selective in what they will buy. The traditional core real estate sectors — office, retail and industrial — are still reporting annual declines in transactions across Europe, according to MSCI.
The biggest buyers of European real estate in the first half include large US private equity groups such as Blackstone, Ares and KKR, according to MSCI.
Blackstone said it invested about $3 billion in European real estate, not including debt investments, with the bulk going to the U.K. — where it made major deals for new housing with Vistry, and acquired a hotel chain, logistics warehouses and a block of luxury shops on New Bond Street.
Recommended
James Seppala, head of European real estate at Blackstone, said the firm is focusing on “logistics, residential, leisure and data centres” because these sectors are “benefiting from occupier and investor demand”.
UK transactions have been driven by some large deals, including LondonMetric’s acquisition of LXI. Other listed owners, including Segro, Unite Students and GPE, have raised capital this year to fund new investments as they look to capitalise on a sustained recovery.
Property valuations in the UK are more closely linked to current market conditions than elsewhere in Europe, a characteristic that generally helps the market to appreciate more quickly.
