UK commercial property market shows signs of recovery, but not for offices

The United Kingdom’s commercial property market is showing signs of a quicker recovery than the rest of Europe, following a challenging two-year period marked by high interest rates and the ongoing re-evaluation of the role offices. According to the Green Street Index, the office market continues to be the most sluggish sector. The latest data suggests that both deal volumes and property values in the UK have seen an increase in the first half of 2024. This contrasts with Germany and France, where dealmaking has remained slow and price gains have been more modest.

Across Europe, commercial property values have fallen by nearly 25 percent since their peak in 2022. However, the first half of 2024 saw a slight overall increase of about 1 percent in prices, according to Green Street’s index, with the UK outperforming its European counterparts, posting a 1.4 percent rise. Transaction volumes in the UK climbed by 7 percent, with properties worth €26 billion changing hands, according to MSCI data, while volumes across continental Europe remained stagnant.

However, this budding recovery is not uniform across all property types. Demand has surged for certain real estate sectors, such as warehouses, residential properties, and hotels, which have seen modest price improvements over the past year, according to Green Street’s European index. In contrast, the office market continues to struggle, with values still facing significant declines.

The first half of 2024 marked the weakest performance for the UK office market since MSCI began tracking it in 2001, with only €4.2 billion worth of transactions recorded. The growth in the UK market has instead been driven by the sale of apartment buildings, student housing, and hotels.

In an interview with the Financial Times, Ben Sanderson, managing director of real estate at Aviva cautioned that the recovery is likely to be “k-shaped,” meaning that while some properties will see their values rebound, others may continue to decline. Investors are becoming increasingly selective in their acquisitions, with traditional sectors like office, retail, and industrial real estate still reporting annual declines in dealmaking across Europe, according to MSCI.