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The UK commercial property market is starting to recover more quickly than the rest of Europe aVsceker a nasty two-year recession caused by high interest rates.
UK property transaction volumes and values rose in the first half of 2024, according to market data. In Germany and France, Europe’s largest markets aVsceker the UK, deal making failed to take off and prices made smaller gains over the period.
Industry executives and agents said the UK had benefited from hopes of political stability aVsceker the general election, a stronger economic outlook, rising rents and more moderate price growth between Brexit and the market peak in 2022.
“The UK has probably been the fastest recalibrating market,” said Mark Ridley, managing director at Savills, which advises on trade deals. “The uncertainty is about the speed and scale of the recovery.”
Commercial property values have fallen by nearly a quarter across Europe since their 2022 peak. However, prices rose by about 1 percent in the first half, according to a Green Street index. The United Kingdom outpaced France and Germany with a 1.4 percent gain.
In the UK, transaction volumes increased by 7%, with properties worth €26 billion, according to MSCI, while volumes in continental Europe remained flat.
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.
“We see the market starting to turn the corner,” said Ben Sanderson, managing director, real estate, at Aviva, one of the UK’s largest institutional property investors, which manages about £50bn. “We’ve been invested in this story for a while.”
The nascent recovery masks 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, are still suffering 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 €4.2bn in transactions. Growth instead came from sales of apartment buildings, student housing and hotels.
Sanderson warned that he expects the recovery to be “K-shaped,” with some properties continuing to lose value while others rebound.
Investors are very picky about what they will buy. The traditional core real estate sectors (office, retail and industrial) all continue to see annual declines in transactions across Europe, according to MSCI.
According to MSCI, the largest buyers of real estate in Europe in the first half of the year included large US private equity groups Blackstone, Ares and KKR.
Blackstone said it has invested about $3 billion in European real estate, excluding fixed income investments, with the largest share going to the U.K., where it has made large new-home deals with Vistry and bought a hotel chain, logistics warehouses and a luxury shopping complex on New Bond Street.
James Seppala, Blackstone’s head of European real estate, said the firm is focusing on “logistics, residential, leisure and data centers” because those sectors are “benefiting from demand from occupiers and investors.”
UK deal-making has been boosted by several large transactions, including LondonMetric’s acquisition of LXI. Other listed landlords, including Segro, Unite Students and GPE, have raised capital this year to fund new investment as they look to capitalise on a sustained recovery.
Property valuations in the UK are more closely tied to current market conditions than in the rest of Europe, a characteristic that usually helps the market to reprice more quickly.
