LONDON – Despite the recent outward bond movement, the UK remains a haven for real estate capital, with the highest level of transactional activity in Europe according to Cushman & Wakefield’s inaugural Visions report.

The real estate services firm provides fresh data and analysis on the key themes and trends driving real estate into 2025. Visions reveals that investment volumes remain well distributed across real estate sectors, despite a contraction in the overall level of transactions in the past two years, with robust levels of activity across healthcare, hospitality and retail in particular.

Visions provides comprehensive data analysis across core real estate sectors including offices, hospitality, net zero development, rents and AI.

Offices

The London office market remains globally the most liquid, with total returns up to Q3 last year amounting to 1.5%, the most positive rate in two years.

Office rental growth is generally experiencing an upward pressure. This is in part due to high demand and comparatively low supply for quality spaces, but also due to the continued business value for employee experience, and desire for new or recently refurbished assets. Marking a record high, new or extensively refurbished assets claimed 68% of all leasing activity across the Big Five and central London markets across 2023.

Since the beginning of the pandemic, the number of central London office deals exceeding ‘prime’ has increased, up 8% in 2023-H1 2024 compared to 2020-2022. Prime City rents are expected to increase by an average of 4.4% per annum through to 2028, while the average of the top 10% of rents achieved in the market are expected to rise by 7.6% per annum.

Leisure

Investment and reward across experiential leisure have boomed over the past two years, with investment in UK experiential leisure across 2022 - 2023 totalling £225 million, an increase of more than 250% on the £64 million invested in 2018 and 2019.

Drawing on findings from Playgrounds of Tomorrow 2024, Visions shows that experience-based sectors have diversified and prospered. The sector will continue to thrive across 2025, with a particularly high record for revenue across live sports and music. In conjunction, UK hotel accommodation spending rose by 250% from 2023-2024. Assets focused on brand-building and clear, confident product messaging will continue to thrive into 2025.

Net Zero

The green energy transition offers diverse opportunities for investors, according to the report. The Government’s ambitious Net Zero 2050 plan will continue to drive employment, productivity and growth, and Visions’ analysis shows that the UK hosts 9 of the top 25 Western European destinations for CleanTech and GreenTech investment, placing the market as central to the energy revolution.

On December 4th, the Government announced a consultation on Minimum Energy Efficiency Standards. While the results of that consultation won’t be announced until February, Cushman & Wakefield has analysed 32,000 individual buildings and estimate that improvement of the built environment to EPC Grade B would cost £71 billion – with significant implications on return requirements.

There is still cause for investor optimism despite this risk: closed-ended funds targeting UK & Ireland enacted ESG-focused value add strategies (such as retrofitting) accounted for 23% of the total in 2023, a record high. The figure is up from 3% between 2015-2020. Cushman & Wakefield’s findings reflect a quadrupling of funds raised for ESG-focused value add strategies rising from £1.1 billion to £4.3 billion averaged annually for the same periods. The figures stand out sharply against the backdrop of total funds raised falling by 12%.

AI

Proliferated use of AI will drive not only a higher demand from data centres, but also from an increasing number of AI companies, which are growing at a quick rate.

While AI input into investment decision making has been stifled in the past by data opacity, Visions predicts that this is set to change. Greater access to data and increasing prominence of Automated Valuation Models (AVMs) will further improve access to data, impacting decision-making.

Overall, UK real estate remains at the forefront of a globally competitive market. As the economy switches its focus purely from inflation to one focused on growth, market conditions have the potential to promote favourable outcomes for investors in the year ahead.

The past year has seen global instability and market fluctuations. However, with key set-piece policy developments, the continued agenda-dominance of ESG, technological advancements and consumer recovery, we are positive about the market in 2025.

Our analysis shows that the real estate sector will continue to adapt to ongoing structural changes, like AI, technology, decarbonisation and societal and geopolitical fluctuations. No investment can be absent of risk, but with targeted data analysis, investors will be able to navigate challenges and capitalise on opportunities with positive impacts on reward, and wider economic growth. Daryl Perry, Head of Research & Insight at Cushman & Wakefield

About Cushman & Wakefield

Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In 2023, the firm reported revenue of $9.5 billion across its core services of property, facilities and project management, leasing, capital markets, and valuation and other services. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity, and Inclusion (DEI), sustainability and more. For additional information, visit www.cushmanwakefield.com.