How is the British real estate market developing? A market commentary by Claudia Nacke, Head of Deutsche Hypo – NORD/LB Real Estate Finance UK.
This year the announcement of the Spring Statement of the British Government (along with many trading figures) was heavily overshadowed by events unfolding elsewhere, politely described by the International Monetary Fund as the “reordering of policy priorities”. Perhaps unsurprisingly, growth rate expectations for major economies in 2025 are being reduced and central banks left with little choice other than to reconsider interest rates. The Bank of England is expected to cut base rate by 0.25% in May and potentially a further three times by the end of the year, inflation becoming a secondary concern to growth.
But what does this mean for the Commercial Real Estate sector in the UK? With investors looking for relative security and healthy underlying performance I would say potentially good opportunities!
Offices in London and the regions are showing resilience as “return to office” policies meet a shortage in attractive, high quality, sustainable product in central business locations. High and rising costs have led to marked slowdown in new development with extensive refurbishment the way forward for many.
Retail parks continue to perform well, especially if they are food-led and there seems to be rising investor interest in shopping centres, too, perhaps indicating a turn of fortunes for these assets.
The lack of rental accommodation in the UK is a long-standing issue and I cannot see recent policy changes being meaningful enough to close this gap in the near future. Here, too, high and rising costs constrain new development whilst cladding and other issues still hamper some existing stock. However, for the right investors there are some attractive opportunities across the whole asset class now.