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Britain's commercial property market is beginning to recover faster than its European peers after two years of a severe slump caused by high interest rates.
Market data showed the number of transactions and property values in the UK increased in the first half of 2024. Germany and France, the second largest European markets after the UK, saw less activity and price increases were only modest during the period.
Industry executives and estate agents said the UK was benefiting from hopes of political stability after the general election, an improving economic outlook, rising rents and a slower rise in prices between Brexit and the market peaking in 2022.
“The UK is probably the market that is rebalancing the fastest,” said Mark Ridley, chief executive of commercial transaction adviser Savills. “The uncertainty is how fast and how far the recovery will go.”
Across Europe, commercial property prices have fallen by almost a quarter from their 2022 peaks. But prices rose around 1% in the first half of the year, according to Green Street's index. Britain rose 1.4%, outperforming France and Germany.
According to MSCI, deal volumes in the UK rose 7 percent, with 26 billion euros worth of property changing hands, but deal volumes across continental Europe were flat.
The signs that the UK market is headed for a faster recovery come despite the European Central Bank cutting interest rates in June, two months before the Bank of England.
“We think the market is starting to turn around,” said Ben Sanderson, managing director of real estate at Aviva, one of Britain's largest institutional property investors with about 50 billion pounds under management. “We've believed that story for some time.”
Signs of a recovery underscore the fact that some types of property are in higher demand than others.
Prices for warehouses, homes and hotels have already risen slightly over the past year, according to the Green Street European index, while other sectors, particularly office buildings, are still seeing steep price declines.
The UK office market saw its worst performance in the first half of 2024 since MSCI began tracking it in 2001, with just €4.2 billion in transactions. Instead, growth was driven by sales of apartments, student housing and hotels.
Sanderson warned that he expects the recovery to be “K-shaped”, with some properties continuing to fall in value while others recover.
Investors are being very selective about the properties they buy, with the traditional major real estate sectors of office, retail and industrial all still reporting declines in annual transaction volumes across Europe, according to MSCI.
According to MSCI, the biggest buyers of European property in the first half of the year included major US private equity groups Blackstone, Ares and KKR.
Blackstone said it had invested about $3 billion in European real estate, excluding debt investments, the bulk of which was in Britain, where it signed a major deal for new homes with Vistry, as well as buying a hotel chain, a logistics warehouse and a luxury retail building on New Bond Street.
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James Seppala, Blackstone's head of European real estate, said the firm is focusing on “logistics, residential, leisure and data centers” because these sectors are “benefiting from tailwinds in occupier and investor demand.”
In the UK, activity has been boosted by several big deals, such as LondonMetric's acquisition of LXI. Other listed property owners, including Seguro, Unite Students and GPE, have also raised capital this year to capitalize on a sustained recovery and raise new investment capital.
UK property valuations are more closely linked to current market conditions than elsewhere in Europe, and this characteristic typically results in the market re-adjusting prices more quickly.
