The U.K. remains Europe’s top destination for real estate investment, despite a recent decline in transactional activity, according to Cushman & Wakefield’s inaugural ‘Visions’ report.
The report offers a detailed analysis of trends shaping the sector into the new year, highlighting areas of growth and resilience across key real estate categories, despite a decline in the overall level of deals in the past two years, with impressive levels of activity in the healthcare, hospitality and retail segments.
Offices
Offices, in particular, remain a key focus, with London’s office market identified as the most liquid globally. Total returns for the sector reached 1.5% by the third quarter of 2024, the highest in two years.
Demand for high-quality office spaces has pushed rental prices higher. Marking a record high, new or extensively refurbished assets constituted 68% of all leasing activity across the Big Five and central London markets in 2023. Prime city rents in central London are forecast to rise by 4.4% annually through 2028, while the average of the top 10% of rents achieved in the market are expected to climb 7.6% per annum.
Leisure
The experiential leisure market has seen remarkable growth over the past two years, with investments in the sector skyrocketing 250% from 2018-2019 to 2022-2023, totaling £225 million (up from £64 million).
Experience-based sectors have diversified and been successful. The sector is expected to thrive this year, with a particularly high record for revenue from live sports and music. Spending on hotel accommodation also jumped 250% 2023 to 2024.
Net Zero Transition
The U.K.’s commitment to achieving net-zero emissions by 2050 is driving investment in sustainable real estate. The report notes that the U.K. hosts nine of the top 25 destinations for CleanTech and GreenTech investment in Western Europe. However, meeting the new energy efficiency standards could cost £71 billion, with significant implications for investors.
Despite these challenges, ESG-focused strategies are gaining momentum. Funds targeting ESG improvements accounted for 23% of total U.K. & Ireland real estate investments in 2023, up from 3% between 2015-2020. Cushman & Wakefield’s findings reflect a quadrupling of funds raised for ESG-focused value add strategies rising from £1.1 billion to £4.3 billion averaged annually for the same periods. The figures stand out sharply against the backdrop of total funds raised falling by 12%.
AI and Technology
The increasing adoption of AI is expected to reshape the real estate market, driving demand for data centers and influencing investment decisions. Automated Valuation Models and improved data access are anticipated to streamline decision-making processes, according to the report.
Optimism for 2025
Cushman & Wakefield remains positive about the future of the U.K. real estate market. As the U.K.’s economy shifts from inflation to one centered on growth, Cushman & Wakefield predicts favorable conditions for investors in the year ahead.
“The past year has seen global instability and market fluctuations. However, with key set-piece policy developments, the continued agenda-dominance of ESG, technological advancements and consumer recovery, we are positive about the market in 2025,” said Daryl Perry, head of research & insight at Cushman & Wakefield.
“Our analysis shows that the real estate sector will continue to adapt to ongoing structural changes, like AI, technology, decarbonisation and societal and geopolitical fluctuations. No investment can be absent of risk, but with targeted data analysis, investors will be able to navigate challenges and capitalise on opportunities with positive impacts on reward and wider economic growth.”
