England and Wales
From an economic viewpoint, 2024 exceeded expectations (albeit those expectations were fairly muted). Many predicted that 2024 would be the bottom of the current cycle and those predictions have been proven, for the most part, true. There were clear signs of recovery towards the end of 2024, with prices stabilising, inflation lowering and a tentative start to interest rate cuts.
We expect this upwards trajectory to continue throughout 2025 with the most sectors in market now on the road to recovery, although improvements may seem gradual at first. The fundamentals remain strong – limited stock and limited availability of high-quality assets along with rising demand – which will have a positive impact on rents and values. Further interest rate cuts should also increase funding availability and project viability, which in turn should see an increase in buyers in the market.
Although the Autumn Budget introduced new challenges to recovery (e.g. increased National Insurance contributions and minimum wage increases), there are other new policies which should hopefully stimulate growth in certain sectors. In particular, the revision of the National Planning Policy Framework and mandatory housing targets as well as the focus on growth areas such as life sciences and infrastructure. It is the widespread view that 2025 will see a modest acceleration in GDP growth, which is always a good sign for real estate.
Logistics
It is expected that occupier demand will remain strong with the already low vacancy rates stabilising. Best-in-class assets should be in a position to achieve rental growth although a moderation of rental growth is expected in the logistics sector generally. A decline in new stock resulting from a slower development pipeline due to cost of capital and construction costs not falling sufficiently relative to achievable rents, will widen the gap between supply and demand thereby increasing the competition for prime assets. Although occupiers could remain cautious as they navigate uncertainty and review supply chain strategies, underlying demand is expected to remain robust.
In terms of long-term outlook, the logistics sector is positioned for growth despite market cycle challenges. The growth of manufacturing operations with extensive operational footprints will contribute to increased demand in big-box logistics and longer-term leases. Best-in-class assets which combine modern layouts, energy efficiency and the ability to integrate the latest technological facilities, will be in high demand. Last-mile logistics and micro-locations are also gaining importance as urbanised e-commerce continues to expand and certain secondary markets offer value-add opportunities.
Although there is an increase in competition for capital, with investors increasingly focussed on alternative asset classes, such as living, core funds remain committed to the logistics sector.
Retail
Rents previously corrected sharply downwards but are now on an upwards curve as retailers take advantage of repriced prime high streets and schemes. Supermarkets have been in demand for a while already. Prime shopping centres, retail parks and prime high street parades are expected to be in high demand this year with 2025 seeing more institutional interest in retail than has been seen for a decade.
Consumer spending continues to be resilient, supported by healthy employment numbers, rising wages and increasing international tourism. These factors are expected to contribute to increased spending in 2025 as interest rates fall and consumer confidence grows. A limited supply of prime retail assets will cause rents to edge upwards over the remainder of the year in line with growing consumer demand. In particular, increasing growth is expected in certain retail sectors such as recreation, food and experiential retail. The lack of much of a retail development pipeline is also expected to result in intensifying competition and higher rent levels for key locations.
Living
The supply and demand imbalance prevalent in 2024 is expected to continue in 2025 for Build-to-Rent assets although a lower level of tenant demand might mean slower rent growth. Changes in demographics will continue to increase demand for a wider variety of living assets. It is expected that global student demand, rising life expectancy, urbanisation and falling household sizes will contribute to driving growth for PBSA, later living and co-living.
Affordable housing demand is also expected to remain strong with increasing investment in this sector. Against the positive legislative backdrop for social rents, investor sentiment for affordable housing is expected to continue to grow, especially from for-profit providers without legacy stock.
Demand for PBSA will continue, not only due to the supply and demand imbalance, but also due to the prospective foreign student caps in other countries thereby driving international student demand in the UK. The resulting rental growth is forecasted to be strong.
With regards to operational real estate, later living demand is also expected to continue to grow although uptake is constrained by a shortage of stock. The hotel sector also remains strong with increasing hotel revenue per available room although demand has decreased due to softening domestic leisure travel. This is somewhat mitigated by strengthening business travel and corporate demand as well increased international tourism.
Offices
Liquidity for larger office deals will rebound in 2025 as interest rates decrease and foreign investment returns. Occupier demand is also expected to return to usual levels in the Central London market and will continue to improve due to the reducing availability of high-quality office space resulting from declining office developments. Supply shortages are emerging for high quality offices in prime locations and there will be a significant need for major refurbishments or retrofitting of older buildings. Design, location and regulatory considerations will all be determining factors as to whether older office assets remain viable.
Life Sciences
The Government’s focus on life sciences, which includes increased spending and other supporting policies, will contribute to this sector’s growth. The pipeline of life sciences developments will also deliver increased levels of new available space in 2025 and beyond, particularly in the ‘golden triangle’. Life science assets present an attractive opportunity for patient capital as occupiers are seeking long-term partners willing to develop and hold through market cycles. Location is key and access to talent is a driving factor in site selection for occupiers.
In previous years, a high volume of investors backed the opportunities in the life sciences sector and developers entered the market at high price points with relatively little occupier evidence and proof of rents. Whilst there is still growth, it is on the basis of more balanced underwriting and therefore more rational competition.
Data Centres
2025 will see a peak of newly developed data centres although strong demand spurred by AI demand is expected to outstrip the new supply. Providers will have increasing leverage in negotiations to drive up 2025 pricing on the back of higher build costs, stubbornly high energy prices and the shortage of available sites.
Despite limited availability of power and sites, the number of data centres built for AI providers and other occupiers with intensive requirements are expected to grow by a record amount in 2025 and that trend will continue beyond.
Northern Ireland
Despite facing a challenging year in 2024, Northern Ireland's investment sector has shown remarkable resilience, with the retail sector emerging as a clear leader. Significant deals, such as the sale of Bloomfield Shopping and Retail Park in Bangor, have been pivotal in this success. Regional shopping centres like Forestside Shopping Centre in South Belfast and Rushmere Shopping Centre in Craigavon have seen substantial investments from local investors, attracting a slew of new retailers, hospitality, and leisure tenants.
Major brands are making their mark in the Northern Ireland market, including Popeyes at Forestside and Mango, Rituals, and Sostrene Grene at Rushmere. The growing consumer demand for experiential shopping is pushing retailers to innovate and think 'outside the box' to entice customers. An excellent example of this is EE's state-of-the-art experience store, which opened in January 2025 at Abbey Centre in Newtownabbey, inviting shoppers to explore the latest in connected technology. Leisure units are also in high demand, with the Hollywood Bowl Group set to open a second location in Northern Ireland as part of the £9 million redevelopment of The Boulevard, aiming to create a vibrant 'food and entertainment quarter.'
The hotel sector has continued to attract investment, particularly as the region prepares to host The Open in 2025. Whitbread PLC plans to open an 81-bedroom Premier Inn hotel at Belfast International Airport and is actively seeking at least three more locations. 2024 also saw the sale of the Etap Hotel on Dublin Road, and the Belfast aparthotel room2 has been listed on the market with a guide price of £21.2 million. This nine-storey, 175-room hotel, which opened in October 2023 on Queen Street, operates on 100% electric and low-carbon renewable energy, earning it the title of "one of the greenest aparthotels in Northern Europe."
Although development levels in Belfast city centre were low in 2024, there has been continued progress in student accommodation schemes, hotels, and transport hubs. The construction of The Loft Lines in Titanic Quarter is well underway, set to deliver 778 apartments, including 151 affordable homes. With demand for new rental homes in Belfast far outstripping supply, this development will play a crucial role in addressing this gap. As Belfast's first Build to Rent development, The Loft Lines is poised to become the city's most sought-after riverside destination.
Scotland
Investment in Scotland’s commercial property returned significantly in the second half of 2024, across all major asset types with the hotel sector having a strong year in Edinburgh and into 2025, in particular, including plans for a new Premier Inn at Edinburgh Airport.
Interest in the office sector also saw an increase with more employers heading back to the workplace, notably the recent acquisition of CityPark, Glasgow.
Retail and leisure was the largest category with Pure Gym opening 3 new sites (2 in Glasgow and one in Elgin) with emphasis on further openings across Scotland this year and Swarovski securing new sites including Gretna and extending the lease term of their current Glasgow store.
There is a mounting requirement for contemporary facilities motivated by rapid developments in artificial intelligence (AI) and the need for sustainability mentioned below in both warehousing and manufacturing sites. This represents an opportunity for Scotland as it continues to attract international investors, which accounted for almost half of overall commercial property investment last year.
ESG issues will continue to be relevant for landlords, occupiers and investors in Scotland and across the UK. The importance of sustainability targets to support the Government's goal of achieving Net Zero emissions by 2050 will be at the core and involve not only the environmental performance of the properties themselves also improving the social impact on local areas and Green Leases will be at the forefront of that.
If you would like to discuss the article further, please contact Rupert Dowdell (England & Wales), Carla Revelo (England & Wales), Julie Galbraith (Northern Ireland), Robin Watt (Scotland) and Ashleigh Farrell (Scotland).
