UK Investment Marketbeat Reports

For the data behind the commentary, download our latest UK Investment Report.

2024 in Review

By the end of 2024, we witnessed £53.4 billion in transactions, marking a 35% improvement over 2023 and 11% above the ten-year average. This growth occurred amidst increasing diversification and numerous portfolio and M&A deals. Notably, the largest deal of the year was the MOD's unique purchase of 36,347 military homes back into public ownership for £6 billion.

Investment for the year was more diversified than ever before. Offices accounted for approximately 15% of all volumes, marking only the second year they were not the most actively invested sector. Traditional commercial sectors comprised just 46% of investment, the lowest proportion on record, and the first year they did not make up the majority of the market. Residential, hotels, and healthcare sectors experienced historically strong activity, while retail saw significant increases, particularly in shopping centres and out-of-town retail sectors. Additionally, 2024 was notable for portfolio deals, with a near-record proportion of investment occurring through these transactions.

What to expect in 2025

The bond volatility in early January has affected the relative pricing of real estate and the cost of debt. While we remain optimistic that gilts will stabilise throughout the year, volatile market conditions and geopolitical uncertainty will continue to impact investor confidence.

In positive news for the market, the MPC decided to cut the base rate by 25 basis points. Notably, two MPC members voted for a 50 basis point cut, indicating the possibility of further reductions in the near future.

Despite its challenges, 2025 is expected to be a promising year, with several structural and thematic drivers positively influencing investment across various sectors.

Economic Overview

GDP surprised on the upside in November, growing by 0.1% after a decline in October. This indicates no growth in the three months to November. We anticipate that by the time the data is released, the economy for Q4 will likely show a small contraction or, at best, a flatline.

There are currently diverse views on the economic growth prospects for 2025. For instance, both the IMF and the Bank of England revised their UK GDP forecasts for 2025. The IMF upgraded its forecast to 1.6%, while the Bank of England lowered its forecast to 0.7%, citing weaker business and consumer confidence. The composite PMI slightly increased from 50.4 to 50.6 in February, suggesting muted growth prospects.

Inflation and Interest Rates

In the 12 months to December 2024, CPIH remained steady at 3.5%, unchanged from the previous month. In the short term, inflationary pressures persist due to factors such as the introduction of VAT on private school fees, rising utility prices, and a 50% increase in the bus price cap. Currently, the temporary nature of these increases, coupled with a more negative growth outlook, has led the Bank to look past these pressures and cut the bank rate. In the February meeting, all nine members voted for a cut, with two advocating for a 50 basis point reduction.

Volatility in the bond market continues. In January, 10-year gilts reached a high of 4.9%, their highest level since the GFC, following spikes after the Autumn Budget and US economic data releases. The previous elevation in the ‘risk-free’ rate has led to the re-pricing of commercial real estate and negatively impacted property values. As of February 10th, ten-year bonds had decreased to 4.5%.