Intelligent Investment
UK Real Estate Market Outlook Mid-Year Review 2025
August 5, 2025 58 Minute Read
Welcome to CBRE’s 2025 UK Real Estate Market Outlook Mid-Year Review; in which we look back and evaluate our expectations for 2025 made at the beginning of this year.
At the outset of 2025, the economic environment had begun to stabilise and inflationary pressures had reduced. Last year’s General Election and Budget announcements set new agendas for the UK and established certainty and focus for the year ahead.
UK Economic Outlook: What’s changed and what’s next?
Nick Knight speaks with Tasos Vezyridis for an updated economic outlook for the UK in mid-2025. They discuss revised GDP growth projections, interest rate forecasts, and specific insights into the living, logistics, office, and retail sectors.
The first half of this year has seen a slight increase in inflation, expected to peak in the summer, but reasonable price stability has persisted. Consumer activity has continued to show positive signs through a rise in retail sales despite the slowdown in wage growth, and continued uncertainty globally. We expect consumption to continue to drive growth as we anticipate a reduction in inflation and further interest rate cuts by the Bank of England later this year.
We are yet to see direct Government investment into the key areas mentioned in the Autumn Budget. However, Government spending has increased, indicating that we could begin to see progress across a broad range of Government initiatives such as the National Planning Policy Framework (NPPF) and The UK’s Modern Industrial Strategy 2025.
Real estate investment in the UK is yet to see a full recovery. Transaction activity in H1 fluctuated in reflection of economic uncertainty, although the office sector saw a rebound in investment.
Other signs of recovery are evident through continued capital growth, the progression of major transactions, and improved sentiment towards lending, particularly on prime assets. We expect an uptick in investment volumes in the second half of this year, including a recovery in investment for larger lot sizes, as well as continued M&A activity in the listed sector. However, the potential impact on investment from recently announced proposals to reform rent reviews needs further consideration.
The occupational market for commercial real estate assets has been underpinned by steady demand drivers such as growing household incomes, rising e-commerce penetration, and growth in office-based employment. Focusing on the retail, office, and industrial sectors, prime assets have demonstrated rental growth, which is expected to continue throughout the remainder of this year.
2025 is a key year for the living sector. The Government’s pledges to boost supply are now translating into action, showing that they are committed to fixing the country’s housing crisis. This will be hugely positive for the living spectrum, with investment across sectors including Build-to-Rent, student accommodation, and affordable housing expected to be strong.
Alternative asset types will continue to play a crucial role as our demands for healthcare, digital technologies, and a sustainable future amplify and evolve. Although demand is growing, supply is still insufficient in some sectors. Stimulating new development and improving infrastructure is essential to make headway. We expect planning policy reform and wider governmental initiatives to support this change, alongside private investment, in the drive to improve economic growth in 2025 and beyond.