The event brought together an expert panel representing businesses from across the real estate market to share their thoughts and insights.
Based on the insights from our event, our article explores what the real estate market expects in 2025.
When we hosted this event in early 2024, we explored the impact of changing demographic of an aging population, the need to embrace technology and what geopolitical influences awaited as 4.2 billion people across the world went to the polls. Our conclusion? That the market needed to be patient, and with the possibility of a new government, change could bring opportunity.
Roll forwards a year and here is a summary of the key insights for 2025, from our recent event.
Current trends in the UK real estate market
The investment market is highly polarized, with investors aligning to structurally supportive sectors. Our panel talked about the types of assets that would be most attractive, the opportunities, the challenges, and reasons to be cheerful in 2025.
Industrial and logistics
There is still significant interest in industrial and logistics properties - these assets have shown resilience and growth, driven by the rise of e-commerce, urban last mile requirements and the need for efficient supply chain solutions. Investors are particularly keen on properties that offer modern facilities and strategic locations near major transportation and urban hubs. There is no indication of the trend slowing down as consumers want faster and focused delivery. High interest rates and build costs are still impairing development outside the south-east which limits supply and may drive rents.
Living sector
Purpose-Built Student Accommodation (PBSA) remains interesting, with residential sectors like Build-to-Rent (BTR) and Single-Family Housing (SFH) seeing significant growth.
“It was a pleasure to join the panel which delivered a robust discussion around expectations for the UK real estate market in 2025. We are optimistic for the sector’s prospects over the course of the year and remain committed to helping our customers achieve their business goals. We are focussed on supporting the real estate sector as a vital component of the UK’s economic landscape. From a residential perspective, we continue to prioritise housebuilding initiatives across all tenures as well as fostering partnerships with Housing Associations to provide affordable, quality homes for communities. In the commercial market we will continue to support our customers to deliver fit for purpose and high-quality assets across the UK.”
Michael Goode, Director, NatWest Real Estate Finance.
Build to rent
This sector continues to attract significant interest from institutional investors. With debt costs coming down and renewed government support, there is a substantial pipeline of consents for multifamily developments in core cities.
Affordable housing
The UK government has set ambitious targets to address the housing crisis by increasing the supply of affordable housing.
The Affordable Homes Programme 2021-26 aims to provide £11.5 billion in grant funding to support the development of 157,000 new affordable homes in England by 2026, with 33,500 of these homes designated for social rent. Investing in affordable housing presents a unique opportunity for stable, long-term returns while addressing critical societal needs. Social housing investments offer consistent Government backed rental income, making them attractive to investors seeking to diversify their portfolios and make a positive social impact. There are challenges however – addressing them requires transformative reforms, increased funding, and innovative approaches to ensure the long-term viability and impact of affordable housing initiatives.
Purpose-built student accommodation
The demand for purpose-built student accommodation remains robust, driven by the increasing number of international students and the need for modern, well-equipped living spaces. Investors remain keen on properties located near major universities and educational hubs.
Retirement living, care home and health care
The growing demand for retirement living communities and care homes continues. With an ageing population that is increasingly leaning towards the private sector for healthcare, this creates further opportunities in this sector.
Office spaces
The challenges for the office market are well known, but there is still interest in high-quality office spaces in prime locations, particularly in London. Occupiers and therefore investors, are looking for properties that offer flexible workspaces and modern amenities to cater to the evolving needs of businesses. The London city office sector is still interesting for investors, and we are starting to see some rental growth coming through good stock. Office valuations are also starting to restabilise.
Interest rates
While there will always be a lot of focus on interest rates, the reality is interest rate fluctuation is nothing new. Rates are expected to trend downwards over the year, but views differ on degree. The panel agreed that its important not to make rash decisions, focused just on rates expectations, but to consider the property fundamentals primarily.
Regulatory environment
The panel discussed the impact of current regulations and touched on the increased National Insurance contributions for national companies with large numbers of employees. The Building Safety Act, while well-intentioned, has faced criticism for its implementation. A lengthy approvals procedure, criticised for making an already drawn-out development process even longer, together with the newly established Building Safety Regulator, part of Health and Safety England, being unresponsive has exacerbated delays. The Act could lead to a development bottleneck and undermine the Government’s housing ambitions. The delay in Gateway 2 decisions being granted is also affecting the funding of BTR and PBSA schemes, making SFH look more attractive given that it is unaffected by Gateway 2.
The introduction of a process giving renters the right to question increases in rent may result in tenants using (and potentially abusing) the scheme as a way of avoiding paying increased rent. It is not clear where that would leave the living sector and, like the issues experienced with the BSA, much will depend on how the scheme is implemented and whether it is properly resourced.
Environmental, Social, and Governance (ESG)
Navigating ESG considerations is challenging and the implementation of ESG initiatives is costly and time-consuming. Developers need to invest in innovative technologies, processes, and materials to meet ESG standards, which can all increase project costs and require significant upfront investment. However, the long-term benefits of sustainable development, such as reduced operational costs and enhanced reputation, can outweigh these initial challenges. There is still more work to do, but developing projects with ESG goals will become easier and cheaper over time.
Reasons to be cheerful
The message of positivity is finally starting to reach private equity investors. Interest rate cuts and a functioning debt market are making everyone feel better!
There are also opportunities tied to anticipated changes in the planning system and the delivery of new homes in the UK across all tenures. Additionally, the potential impact of AI on the construction and development sector is also an exciting prospect as work that might have taken months can be condensed into small fractions of that with the help of new software.
If you would like to discuss this article further, please contact Kirsty Siviter or Melanie Williams.
