H2 2024 Market Update
Written by Nick Masters, Senior Investment Manager and Ambika Shihn, Trainee Analyst
Economic backdrop
The UK economy continued to slow in Q4 2024 with Real GDP growth revised down to 0.0% q/q in Q3 and indicators suggesting GDP flatlined or suffered a small contraction in Q4. This would have been much worse if not for an increase in government spending, which is expected to play an important role in driving GDP growth for the remainder of the Labour Government’s term in office.
Business sentiment slumped to a one-year low following the October Budget, and despite recovering some of its losses, consumer confidence remains below its pre-Budget levels. Part of this is the Chancellor’s own doing, as businesses baulked at the rise in the minimum wage and employers’ National Insurance tax scheduled to come into effect in April 2025.
The subsequent c.50bps rise in gilt yields from September to December 2024 has increased the cost of government borrowing, meaning the Chancellor is on track to break her fiscal rules in the absence of further spending cuts and/or tax rises. CPI inflation increased from 1.7% to 2.5% over the same period, primarily due to the recent rises in wholesale gas prices.
November saw a 25bps cut to the BoE Base Rate, with a further 25 bps cut announced in February 2025, taking the BoE Base Rate to 4.5%. However, with CPI inflation forecast to edge back up to 3.1% by Q3 2025, coupled with the prospect of softer GDP growth, it is not yet clear whether the BoE will continue to cut rates at the same pace. Capital Economics still think there is a case for stronger growth and that inflation will quickly unwind in 2026, prompting the BoE to cut interest rates to 3.5% by early 2026.
Real Estate
The commercial real estate market in the UK continued to gradually rebound in H2 2024 after real estate capital values moderated in 2023. After stabilising, commercial real estate capital values started to progressively increase throughout the year, with The UK Monthly Index from CBRE indicating that throughout 2024, the capital values of all properties rose by 1.8%.
The outlook for the UK investment is better than it was a year ago, despite the fact that there are still questions over the degree of economic recovery and the trajectory of interest rates in the country. Investors' desire to transact in 2025 has increased, according to the CBRE 2025 European Investor Intentions Survey.
In Q4 2024, investment in UK commercial real estate increased by 63% to £16.8 billion, compared to Q3 2024 transaction volumes. With a 20% increase in annual investment over 2023, the impressive last quarter resulted in a total investment volume of £53.6 billion in 2024, with the average lot size equating to £35.6 million, up from £31.2 million in 2023, per CBRE research.
Industrial
The UK industrial investment market saw positive momentum in 2024, with investment volumes reaching £6.2 billion, a 20% year-on-year increase. Sentiment improved throughout the year, culminating in £1.5 billion of transactions in Q4, supported by a stabilising macroeconomic environment and the start of an interest rate cutting cycle. Strong investor interest was driven by short-term reversionary potential, with Grade A and Grade B multi-let and mid-box assets in core locations performing best.
The UK investment market outperformed 2023 in 2024, with multi-let and mid-box industrial assets leading the way. Transaction volumes for this sub-sector reached £3.6 billion, the second highest on record and 20% above the five-year average, reflecting strong investor demand. Multi-let and mid-box assets accounted for 60% of industrial investment, surpassing big-box logistics for only the second time on record.
Though optimistic, overall sentiment is still cautious, and the market continues to face the same difficulties of limited stock and delayed decision-making that have persisted it since 2022.
Graph Source: JLL
Self-storage
Due to operators' optimistic views on trading circumstances, an extensive array of investors are showing a great deal of interest in this market, displayed by storage investment volumes which have almost doubled since 2023 to circa £540m. Investors are looking to discover more about freehold-backed companies and management systems.
With operational success guiding investor attention, the outlook for self-storage investments is still positive. However, a shortage of large-scale investment prospects in the UK limits the market.
Graph source: CBRE
Offices
The office occupier market across the South-East remains highly diverse, with notable pockets of activity driving market momentum. As 2024 came to a close and economic uncertainty subsided, key corporate occupiers formalised their occupational strategies, resulting in the largest quarterly take-up since 2018.
In Q4 2024, office take-up totalled 469,000 sq ft (units of 5,000 sq ft or more) , with occupiers looking for best-in-class space to entice employees back to the office and comply with ESG objectives. Additionally, 2024 take-up nearly reached the 5-year average of 2.193 m sq ft, surpassing 2023 by 8.8%. Additionally, occupational flexibility emerged as a dominant theme across most South-East submarkets. This trend has driven increased adoption of bespoke Cat-B fit out solutions for tenants and a rise in serviced office offerings, as landlords and operators respond to evolving tenant requirements.
Life sciences
The underlying supply and demand dynamics for the Life Sciences sector in key markets such as Oxford, Cambridge and London, remain favourable and should provide an opportunity to capitalise on further growth.
According to research conducted by Cushman & Wakefield, take-up in Q4 across the Golden Triangle totalled 126,800 sq ft. This represents a 50% increase on the leasing activity that occurred in Q3, though still remains 17% below the five-year quarterly average. At 106,200 sq ft, Oxford accounted for more than 84% of the total square footage leased in the Golden Triangle, with 13,400 sq ft leased in Cambridge and 7,300 sq ft leased in London. The largest of the nine lease agreements that drove leasing activity in Q4 was Novo Nordisk's acquisition of 61,000 square feet at The Oxford Science Park.
Investment volumes in the Golden Triangle life sciences real estate market surpassed the £553 million in 2023 to reach £430 million in Q4 2024, which accounted for 60% of the overall volume this year (£720 million). The industry is anticipated to continue growing, albeit moderately, as a more advantageous investment climate is fostered by progressive interest rate reductions in the US and the UK.
Graph Source: Cushman & Wakefield Research 2024
Later living
A major demographic transition is currently taking place in the UK, with a rapidly ageing population being one of the main trends. People 75 years of age and older are the primary target age group for Senior Housing. The Office of National Statistics estimates that 6.31 million people in the UK were in this age group in 2023. There will be room for investment in care facilities since this number is expected to rise to 6.97 million by 2028, an 11% increase in only five years.
According to JLL, healthcare investment reached £3.9 billion in 2024, with care homes receiving two-thirds of the overall investment volume. US REIT Welltower's £750 million acquisition of Care UK was the biggest transaction of the year. In 2024, the average size of care facility deals almost doubled from £28 million to £55 million, due to a number of significant portfolio deals.
JLL forecasts £4.3bn of healthcare investment in 2025.
Graph Source: JLL Research 2024
Summary
Investor confidence is steadily increasing, driven by sustained growth in key real estate sub-sectors, including industrial, self-storage, later living, and life sciences. These sectors are expected to deliver strong returns on existing investments while presenting attractive acquisition opportunities for 2025.