According to Savills, UK commercial property is beginning to see renewed interest from international investors, with US$14 billion of cross-border capital entering the market in the first half of 2024. This figure surpasses investment volumes in the USA and other key European markets. Despite some remaining caution ahead of the new Government’s budget in October, Savills believes the recent base rate reduction and increasing confidence in the UK’s economic outlook have marked a turning point for most investors. This shift is expected to result in greater capital deployment in the final quarter of the year.
The average prime commercial property yield in the UK held steady at 6.07% in July. However, Savills anticipates a tightening of yields by the end of 2024, coinciding with an expected further interest rate cut of 25 basis points in November. The consultancy also predicts additional rate reductions in 2025, which will likely strengthen investor sentiment and spur further activity.
James Gulliford, joint head of UK commercial investment at Savills, notes that the UK’s improving economic fundamentals are boosting tenant demand, which should ultimately lead to stronger yields by year-end. He highlighted that, for the first time since 2017, all major rental growth indices are showing positive year-on-year growth. Retail rental values, in particular, have seen a significant shift, with rents recovering after previous declines. As retail rents stabilise and grow, they are joining the already consistent growth seen in the prime industrial and office sectors.
Mat Oakley, head of UK and European commercial research at Savills, added that the UK’s renewed focus on fostering economic growth is a sound strategy. However, he cautioned that reversing long-standing macroeconomic trends will be a gradual process, and potential risks remain. Nevertheless, the UK currently appears more politically stable than in recent years. From a European perspective, UK real estate is now perceived as comparatively affordable, which could attract more international investors, especially if inflation continues to fall and economic growth strengthens.
Savills’ analysis points to a positive outlook for UK commercial property investment, with improving market conditions expected to bolster investor confidence in the near future.
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