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1、UK Real Estate Market OutlookIntelligent Investment2025REAL ESTATECBRE RESEARCHREPORT2CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKContentsEconomic OutlookInvestmentSustainabilityOfficeIndustrial&logisticsData CentresRetail01020304050607Living Residential Sales

2、 Build-to-Rent Affordable Housing Purpose-Built Student Accommodation Operational Real Estate Senior Living Hotels Healthcare Leisure,Food&Beverage Self Storage Roadside&AutomotiveLife Sciences0809102CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK3CBRE RESEARCH 2

3、024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKIntroduction2024 had its fair share of ups and downs,but from an economic point of view,it turned out to be better than expected.Inflation fell in the first quarter and was near,or at target,for the rest of the year.Consequently,th

4、e Bank of England(BoE)started its interest rate cutting cycle.Overall,the economy grew by around 1%.We now appear to be firmly on the road to recovery,and we forecast the growth trajectory to continue in 2025,boosted by further interest rate cuts.However,the earlier than expected general election he

5、lped bring a level of certainty to the country,albeit the long wait for the budget was unnerving,especially given the down beat narrative,particularly around the need to fund the large public finance black hole.Some of the measures introduced in the 2024 Autumn Budget will be challenging for busines

6、ses,particularly the additional National Insurance contributions effective from April 2025.Still,there is much to be positive about.The Invest 2035 strategy sets out a strong vision,highlighting growth areas including the life sciences,finance,and tech sectors.The paper also recognises the need for

7、infrastructure improvements to underpin the growth agenda.This vision,if enacted,combined with the fiscally stimulating spending plans,will help drive the UK economy in the coming years.Moreover,we expect the revised National Planning Policy Framework(NPPF)to land imminently.This revision will see a

8、 return to ambitious mandatory housing targets and introduce a progressive new classification of land the grey belt.With it comes increased pressure for Local Authorities to review the Green Belt if they are unable to meet housing targets on brownfield land.These changes have been well-received by t

9、he development industry and are a cause for optimism.The NPPF consultation has elicited a significant response,and we are eager to see how the Governmentadapts the NPPF from its draft version.Of course,planning changes alone wont solve the ongoing housing crisis.But it may help provide a well-needed

10、 fillip to housebuilders,which,coupled with a more stable economic backdrop and lower interest rates,will help drive momentum in the housing market.A further fillip to housing delivery,should come via the Governments initiative to establish New Towns.An independent task force led by Sir Michael Lyon

11、s and Dame Kate Barker has been commissioned to develop a vision for the New New Towns,identifying suitable locations for communities of at least 10,000 homes within 12 months.While the exact number of New Towns remains unspecified,the prospect of a new Milton Keynes emerging nearby is quite possibl

12、e.Politically,it will be interesting to see if groundbreaking on a New Town occurs before the next election.2024 CBRE,INC.Real Estate Market Outlook 2025|UK4CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKLooking through a commercial real estate lens,it is becomin

13、g increasingly evident that the market reached the trough in 2024.According to our monthly index,all property capital values are now showingembryonic signs of a turning point,whichwe expect to continue and gather more strength in 2025.As we leave a year where investment volumes remained at historica

14、lly low levels,a rise in values,alongside lower interest rates and lower costs of debt,will stimulate a pick up in investment in 2025 of around 15%to 53bn.2024 was the year of the election,with more than 50 countries going to the polls.The last of the year saw the Republic of Ireland vote on 29 Nove

15、mber.Still,2025 wont be without its political turmoil as we expect a general election in Germany and France following the collapse of their respective governments.This will contribute to the ongoing geopolitical uncertainty.And of course,we will see Donald Trump return to the White House after the U

16、.S.election saw him become only the second U.S.president to win non-consecutive terms.Trumps return to office will likely bring with it some fiscal stimulus and a tax policy favourable for real estate investors and occupiers in the U.S.While a growing U.S.economy would be net positive for the UK,the

17、 possibility of higher U.S.import tariffs on European goods may weaken EU growth.Yet it is uncertain whether tariffs will be applied to the UK,but if so,they could reduce U.S.demand for UK goods.U.S.tariffs,in combination with more restrictive immigration policies,could affect labour availability,re

18、ignite inflation,and result in higher U.S.interest rates.This may further strengthen the dollar,which might encourage a wave of U.S.capital to target European real estate assets.The sustainability agenda remains a notable consideration for investors,developers,and occupiers,not least due to the fast

19、-approaching deadline for tighter MEES regulations.Investorsand developers are also becoming increasingly aware of the need to mitigate against physical risk.In the UK,one in six properties is at risk of flooding,with an annual remediation cost of 1bn.But there are also opportunities in areas like e

20、lectric vehicle charging points and renewables.Artificial Intelligence remains front of mind,and we expect it to develop further in 2025.While it may take some time for its applications to be truly revolutionary,its impact on efficiency through automating repetitive processes should continue to feed

21、 through quickly.In the medium-to-long-term,commercial real estate is likely to see substantial benefits from AI.In the shorter-term,data centres are poised for transformation;the expansion of AI is not only driving a significant increase in demand forcapacity,but also the requirements are evolving

22、to reflect the computational and storage needs of these advanced applications.On the surface,2025 may seem like a benign year,with steadier economic growth and modest levels of commercial real estate activity.But the underlying picture and nuances will be farmore exciting.2024 CBRE,INC.Real Estate M

23、arket Outlook 2025|UKEconomic Outlook6CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKWe anticipate a more stable inflationary environment,with rates at or marginally higher than the BoEs target.As a result,we expect to see the BoE cut the base rate by a further 1

24、00bps in 2025.Lower inflation and interest rates,together with the tight labour market,will boost real income growth.As a result,we will see stronger consumer spending in 2025.This,coupled with increased Government spending,will help to drive GDP growth of 1.8%.0403Business investment in the UK has

25、struggled recently and is a primary focus for the new Government.The Government has committed large sums to investment in key areas but have increased business costs.Therefore,private business investment could suffer in the short-term despite falling borrowing costs.02However,there are risks:inflati

26、on surprises could derail interest rate cuts and reduce growth.Businesses will need to absorb higher NIC costs in April 2025,which may reduce wage growth,increase prices and/or reduce private sector job creation.Long-term interest rates have trended up during the final quarter of 2024.If this trend

27、persists into 2025,it could threaten both private sector demand and property investment.01Key takeaways6CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK7CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKInflation fell sharply in t

28、he first quarter of 2024,remaining at or near target thereafter.In response,the Bank of England made its first rate cut in over four years in August,and a further cut in November.This,coupled with tight labour markets,continued to drive positive real income growth,which in turn supported household c

29、onsumption.Although consumer confidence weakened in the latter part of the year,retail sales and consumer spending were ahead of H2 2023 levels.In addition,survey evidence suggests businesses were in expansionary territory for all of 2024.Together,this produced higher than anticipated growth,althoug

30、h at 1.0%,it is still well below the long-term average.ECONOMIC RECOVERY TO CONTINUE INTO 2025We expect 2025 to see the UK economy to return to a more stable long-term trend rate of growth,with GDP at 1.8%.Inflation will likely fluctuate around or just above the target level,with some short-term vol

31、atility related to energy,wages,and service sector inflation.Even so,we expect the Bank of England to continue its rate cutting cycle with around 100bps of cuts in 2025.The backdrop of price stability,rising real incomes,and falling debt costs,which we expect to see in 2025,are all conducive to stro

32、nger growth.In addition,the Labour Government has committed large sums to investment in key areas,including transport improvements,health,schools,and housing.This will further stimulate growth.As a result,we expect employment growth of 0.8%in 2025.However,businesses will face higher costs due to the

33、 increase in employers NICs,effective in April 2025.This could marginally slow the rate of job creation as firms look at ways to maintain profit margins.And while increases in the minimum wage are fiscally expansionary,they will further add to some business costs and may dampen private business inve

34、stment levels.Firms may try to pass their higher costs to consumers via higher prices,which may prove marginally inflationary.There are other inflationary risks,not least from the Trump administrations proposed import tariffs,and an escalation of the Middle East conflict,which could impact energy av

35、ailability and prices.2023A*202420252026GDP growth0.31.01.81.8Inflation7.3 2.52.42.3Unemployment4.04.34.34.0Base rate5.254.753.753.00Ten-year gilts4.24.03.43.3Source:CBRE Research*ActualFigure 1:CBRE economic forecastsTHE UK ECONOMY PERFORMED BETTER THAN EXPECTED IN 2024 8CBRE RESEARCH 2024 CBRE,INC

36、.Intelligent InvestmentReal Estate Market Outlook 2025|UKThe property market reached the bottom of the cycle in 2024 and ended the year with slightly improving values.Yields remained stable for the majority of 2024,but we expect them to compress in early 2025,reflecting the modest interest rate cuts

37、.Prime,well-located office stock should benefit from the expected jobs growth.Both the retail and logistics sectors will gain from the increasing consumer demand.Although lower interest rates will support activity in the for sale residential market,the continued demand and supply imbalance is suppor

38、ting strong rental growth in the private rented sector.However,planning reforms may alleviate supply shortages in the medium-term and provide more investment opportunities.In figure 2,our all property net total returns forecastsshow returns will be competitive across all segments.However,our analysi

39、s suggests that prime property returns could be stronger.Strong income growth,combined with capital value appreciation,will make 2025 an opportune moment to buy,and unlike 2024,more credit should becomeavailable.Source:MSCI,CBRE ForecastingFigure 2:Annual returnsWHAT THIS MEANS FOR THE COMMERCIAL PR

40、OPERTY MARKET FORECAST-30.0-25.0-20.0-15.0-10.0-5.00.05.010.015.020.025.0Capital growthIncome returnTotal returnsInvestment 10CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKWe expect real estate lending to increase in 2025 and for demand to be split moreevenly be

41、tween financing for new acquisitions and refinancing of existing loans.This will be facilitated by recent falls in debt costs that will make leverage more attractive again for new acquisitions.05Institutions are looking to invest more capital into private markets.We expect real estate to be compared

42、 more frequently with alternatives such as private equity,private debt,and infrastructure,as allocations are made across private asset classes.More institutional capital is likely to be deployed into real estate debt.04Recent activity in the listed real estate sector supports our perception that the

43、 investment environment is shifting.While some investors will continue to act cautiously over the next few months,others appear well-positioned to take advantage of the market reaching a trough.03There is an improved outlook for most sectors of real estate following repricing over the last two years

44、.Yet there are ongoing challenges for older,lower quality assets in each sector where the expenditure needed to reposition these properties will act as a drag on investment performance.02Total returns from UK real estate investments are set to improve in 2025,with income return supported by a resump

45、tion of capital growth.While rental growth is likely to be the main driver for any capital growth,some yield compression is possible especially in sub-sectors where investor demand is stronger.01Key takeaways10CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK11CBRE

46、 RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKMORE OPPORTUNITIES ARE EMERGINGNonetheless,we believe that the trough in capital values has been reached and,historically,real estate investments made at the trough of the market have outperformed investments made in oth

47、er market conditions.While investors have been acting cautiously given uncertainty around pricing,sentiment is improving and there is more recognition of the opportunities presented by repricing in the UK real estate market,especially among private equity investors.Activity in the listed real estate

48、 sector supports our view that the investment environment has shifted.M&A activity,bond issuance,and capital raising by UK REITs in recent months have sought to capitalise on changing sentiment towards real estate investment.REIT share prices have been rising,albeit gradually,and the discount to net

49、 asset value(NAV)at which REITs trade has narrowed,while secondary market pricing for unlisted real estate funds is now closer to NAV.There was only a limited amount of new equity raised for real estate funds in 2024,but there are signs that more capital will flow into the real estate market in 2025

50、.However,UK institutional investment is in a period of transition.While private sector defined benefit pension funds will continue to dispose of growth-oriented assets like equities and real estate in favour of fixed income investments,local Government pension schemes are seeking to pool their exist

51、ing real estate holdings and deploy more capital into the asset class.Source:CBRE ResearchConditions in the UK real estate investment market have improved over the course of 2024,placing the market on a more stable foundation for the year ahead.Pressures from higher interest rateshave eased and more

52、 investors are making plans to deploy capital in real estate.However,world challenges for investment remain.We expect investment activity to increase next year as the market continues to normalise.Total returns as recorded by our Monthly Index are now consistently positive,and capital values have st

53、opped falling in many parts of the real estate market.At an aggregate level,we expect total returns to improve further over 2025,underpinned by income return and a resumption of capital growth.Rental growth is likely to be the main driver for capital value increases in the year ahead,but some yield

54、compression is possible especially in those sub-sectors where investor demand is stronger.The aggregate picture can hide trends affecting different types of assets.The performance of the main commercial property sectors has diverged in recent years,and this continued in 2024 with values falling for

55、longer in the office sector than for other property types.Although we think that prospects are better for all sectors next year,challenges remain for older assets.This is especially true in the office sector where CapEx needed to improve the quality and energy efficiency of older stock will act as a

56、 drag on pricing and performance.Figure 3:Projected UK real estate investment volumesINVESTMENT RETURNS ARE IMPROVING0102030405060202320242025Volume bnForecast bn12CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKThere is also a growing pool of capital managed by i

57、nsurance companies and other investment managers on behalf of defined contribution pension plans.Hybrid funds that invest in both private and listed real estate assets are one route for more of this capital to be invested into real estate while satisfying liquidity requirements.Another route is thro

58、ugh Long-Term Asset Funds(LTAFs),which operate under different liquidity rules.The launch of LTAFs illustrates a wider interest among institutions to deploy more capital in real assets and private markets generally.This should be beneficial for property investment,but competition for capital is bein

59、g reframed as a result,with real estate now more frequently compared with private equity,private debt,infrastructure,and natural capital.Thematic investment is also influencing decisions,and we expect this to benefit sectors such as healthcare,affordable housing,and data centres,which might attract

60、capital from infrastructure allocations as well.Increased interest in private market investments has also led to an expanded real estate debt market in which debt funds,insurance companies,and sovereign wealth funds have joined banks in providing debt finance to the UK real estate market.Changes in

61、property values and interest rates have presented challenges for deploying capital raised for debt strategies despite the potential for strong risk-adjusted returns,but we expect that the improving outlook will lead to a higher volume of real estate lending in 2025.THE INVESTMENT MARKET IS EVOLVING1

62、3CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKSource:CBRE ResearchNote:These interest cover ratios assume a senior loan at 55%loan-to-value ratio with a margin of 180bps in each case but note that LTVs and margins vary across these property types in practice.Wh

63、ile demand for debt was dominated by refinancing requirements over the last year,we anticipate a more even balance between acquisition financing and refinancing in 2025.This reflects our belief that improving total returns for real estate assets will create more situations where leverage is accretiv

64、e in investment acquisitions.However,since a return to ultra-low interest rates is unlikely,the affordability of debt will remain in focus as investors determine how to finance potential acquisitions in the year ahead.We have seen a material reduction in debt costs over the last 12-18 months.This re

65、flects a fall in short-term and long-term interest rate benchmarks,and the effects on loan margins from increased competition among lenders for high-quality assets and sponsors.When allied with the impact of repricing in the real estate market,this has led to an improvement in the ability of investo

66、rs to service new loan agreements.Figure 4 illustrates how interest cover ratios have shifted in the last 12 months based on movements in interest rates and prime property yields.Challenges will remain for refinancing loans that were created in a lower interest rate environment and some distress cou

67、ld emerge where falls in asset value have been especially pronounced.Nonetheless,we continue to believe that distress will be limited based on our experience of lenders and borrowers working together to resolve funding gaps.Further cuts in interest rates will ease the resolution of these situations

68、and help sustain recovery in the real estate market over the next 12 months.Figure 4:Interest cover ratios for lending have improved as yields have risen and interest rates have fallen0.000.501.001.502.002.50PBSA regionsBTR regionsLogisticsRetail parksOffices regionsOffices CityQ3 2024 Indicative IC

69、RQ3 2023 Indicative ICRDEBT HAS BECOME MORE AFFORDABLESustainability15CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKTo date,our Building Regulations and Future Homes and Buildings Standards have not sought to tackle embodied carbon emissions of construction and

70、refurbishment,but we anticipate there will be an increased focus as a result of COP29.05With fast approaching public net zero carbon dates,occupiers,landlords,investors,and lenders will need to have greater alignment on sustainability objectives,presenting opportunities for collaboration.04We expect

71、 a greater focus on both transition and physical climate risks in transactions,budgets,and valuations.It is essential to accurately determine the cost of mitigating extreme weather riskas wellas climate-related regulatory and market implications.03In the UK,the FCA intends to adopt the IFRS ISSB sta

72、ndards for mandatory non-financial(ESG)reporting.From the EU,the Corporate Sustainability Reporting Directive(CSRD)will impact cross-borderportfolios for investors and occupiers alike.02Following the Labour electoral victory,we expect 2025 to see a raft of sustainability-related policy and legislati

73、on introduced;the real estate sector can anticipate announcements on EPC/MEES regulations,as well as the Future Homes Standard.01Key takeaways15CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK16CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market O

74、utlook 2025|UKFollowing the PMs pledge during COP29 that the UK Government will increase its climate ambition by targeting an 81%reduction in national carbon emissions by 2035,its likely that the built environment,which contributes to up to 40%of UK emissions,will be the focus of policy-makers atten

75、tion.For existing assets,the Department of Energy Security and Net Zero has acknowledged the need to clarify the trajectory of Minimum Energy Efficiency Standards(MEES)for both commercial and domestic buildings,promising it will publish a full response to the outstanding consultations in 2025.The pr

76、evious Governments proposals were to make it unlawful to let or continue to let commercial property with an Energy Performance Certificate(EPC)rating below C by 2027,with an equivalent date for homes of 2030.Regardless of the precise dates at which such standards are required,occupiers and landlords

77、 should be tracking EPCs of assets across their portfolios and plan works and negotiations accordingly to ensure compliance at the earliest date possible.Its also worth highlighting that EPCs themselves are likely to be consulted on in 2025 as part of the EPC Action Plan to ensure that they are more

78、 accurate,reliable,and trusted by relevant market stakeholders.The Government is also committed to improving the energy efficiency and reducing the carbon emissions of new homes and commercial buildings.The Future Homes and Buildings Standards were initially planned by the Conservative party,and due

79、 to be introduced in 2025.For both new homes and commercial buildings,the proposed standards would deliver higher levels of energy efficiency,increased provision for renewable energy generation,and low carbon heating solutions or electrification.While Labour have previously signalled their intent to

80、 follow these plans,they have yet to formally commit,and the standards are still subject to legislation being laid before Parliament.Furthermore,the Autumn Budget confirmed the Carbon Border Adjustment Mechanism(CBAM)will cover steeland cement imports which could impact construction costs.INCREASING

81、 DISCLOSURE REQUIREMENTSIn the UK,the Financial Conduct Authority(FCA)has indicated its adoption of the International Financial Reporting Standards(IFRS)sustainability disclosure standards.Real estate investors can expect to align their IFRS reporting with the Task Force on Climate-Related Financial

82、 Disclosures(TCFD),providing a comprehensive view of how climate risks are managed in financial performance.In implementing IFRS disclosures,property owners should also take account of the Sustainability Accounting Standards Board(SASB)Real Estate Sector Guidance and the IFRS-adopted Transition Plan

83、 Taskforce(TPT)guidance.From the EU,the CSRD will drive further transparency and impact cross border portfolios for investors and occupiers alike.The ongoing evolution of non-financial(ESG)reporting will mean a continued focuson third party verified audit quality data as well as clarity on climate c

84、hange-related cost transition and adaptation implications.PHYSICAL AND TRANSITION RISKSWith 2024 expected to become the warmest year on record,following a decade of unprecedented high temperatures,it seems likely that this warming trend will continue into 2025.Global average temperatures are gradual

85、ly approaching a 1.5C increase compared to pre-industrial levels.This means that extreme weather events and their physical damage to buildings are set to increase in both number and severity.So,we expect physical climate risks and the associated costs of adapting assets to make them more resilient t

86、o become even more scrutinised in market transactions,alongside the continued focus on net zero carbon transition costs.Occupiers will be increasingly cognisant of the risk to business continuity and wellbeing of site users.The UKGBC plan to publish a UK-wide Climate Resilience Roadmap for buildings

87、 in 2025,and the Environment Agency will be updating flood risk maps to incorporate future projections.Following the publication of the UK Net Zero Carbon Buildings Standard in September 2024,the pilot application of this will commence early in 2025 and will likely heighten the demand for transparen

88、cy on asset performance against underlying targets through increasingly detailed due diligence insights,portfolio analysis,and asset valuations.WHAT WILL THE LABOUR GOVERNMENT DO TO DECARBONISE THE BUILT ENVIRONMENT?17CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|

89、UKThere is an increasing urgency,particularly for occupiers,to meet their publicly-set Science Based Targets for 2030.These targets should be integrated in all stages of a transaction,with CapEx aligned with the portfolio strategy to inform real estate decisions.This presents an opportunity to demon

90、strate the sectors capabilities,where the mantra of radical collaboration can present significant opportunities,while also raising significant expectations.Achieving successful outcomes will require greater alignment on sustainability objectives between occupiers,landlords,investors,and lenders.With

91、 the Better Buildings Partnerships latest revision to the Green Lease toolkit gaining significant traction in the industry,we expect to see the negotiation of more green lease clauses by both landlords and tenants.Additionally,there will be a continued emphasis by occupiers on market-leading certifi

92、cations such as BREEAM,NABERS,and the WELL Building Standard.GROWING FOCUS ON EMBODIED AND WHOLE LIFE CARBON As COP29 in Azerbaijan concludes,it is important to recognise the growing global momentumto tackle the embodied emissions associated with the manufacture,transportation,and assembly of constr

93、uction products and materials.Following the official launch of a Buildings Breakthrough at COP28,70 countries around the world signed up to the Declaration de Chaillot in Paris on 7th March 2024 committing them to a range of actions towards a common goal of“near-zero emission and resilient buildings

94、 to be the new normal by 2030”.As a signatory,the UK will need to take action on these building specific priorities,many of which focus on addressing the whole life carbon(WLC)emissions across the entire lifecycle of buildings.To date our Building Regulations and Future Homes and Buildings Standards

95、 have not sought to tackle embodied carbon emissions of construction and refurbishment,but we anticipate that WCL assessments will soon become a pre-requisite to secure planning permission for buildings of a certain floor area or size.The EU has already mandated that starting January 2028,all new bu

96、ildings with floor areas above 1,000m2 will be required to undergo a WLC assessment.By 2030,this will apply to all new buildings.We anticipate that this will result in a greater focus on renovation and repurposing existing buildings over constructing new ones.Additionally,there will be a need to eva

97、luate the WLC implications of operational decarbonisation works,alongside their expected return on investment for all existing assets under management.NEARING NET ZERO PUBLIC TARGETSOffice19CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKLiquidity for larger lot s

98、izes,along with greater price discovery is expected in 2025.This is likely to translate into an increase in sales of stabilised assets in the regions.Wealso anticipate foreign buyers to return to the Central London market.05As interest rates continue to come down,we predict the full cost of debt for

99、 prime stabilised office assets to fall in 2025,which will have a positive impact on investment volumes.04Prime rental growth is expected in 2025 in all markets tracked by CBRE as supply-side constraints continue.This is due to recent low levels of development starts as construction costs and the co

100、st of debt has remained high.03The expansion of the flexible office market will continue in the large UK cities,attracting an increasingly varied range of occupiers.02Continued growth in take-up is expected in 2025 due to a combination of factors,including the market having right-sized,forecast impr

101、ovement in the macroeconomy,and projected increases in office-based employment.01Key takeaways19CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK20CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKFLEX MARKET TO GROW AND DIVERSIFY

102、There has been an increase in take-up from serviced office operators in the major regional cities,making 2024 likely the strongest year since 2019 for operator take-up.We expect growth to continue in 2025.Manchester is currently the largest market outside of London,with 1.2m sq ft of flex office spa

103、ce.As the scope of flexible workspaces is evolving,a wider range of occupiers view it as a viable option.Traditionally,the Tech,Media and Telecoms sector has driven flex office demand.However,in 2024,there was an uptick in demand from the financial and professional services and business sectors.We e

104、xpect the pool of occupiers to diversify further moving into 2025,with demand driven by several factors including reductions in capital expenditure,solving for uncertain demand,and providing space for temporarily displaced teams.PRIME RENTAL GROWTH WILL CONTINUE IN 2025Grade A office supply remains

105、constrained across the UK.Moreover,high construction costs,coupled with the lower availability and higher cost of debt has led to a relatively low level of development starts in 2024.This will lead to fewer development completions in 2026 and beyond,further limiting the choice for occupiers looking

106、at development stock.As a result,we expect the recent pressure on prime rents to continue.We forecast prime rental growth in all markets in 2025,of c.6%.The City is expected to outperform all other markets in Central London and the rest of the UK at c.8%rental growth in 2025.Locational factors like

107、accessibility to public transport and amenities will continue to influence which buildings experience exceptional rental growth.Source:CBRE ResearchOffice-based employment growth in the UK paused in 2024,following a substantial increase in 2023.Despite this,take-up marginally increased over the year

108、.This partly reflects occupiers planning for future growth.In addition,some occupiers are continuing to evolve their hybrid working strategies,with an element of ongoing space right-sizing.While some occupiers have downsized,over the past three years,the number of Central London occupiers moving int

109、o larger premises has been twice as high as the number of occupiers moving into smaller premises.On top of this,since the last lockdown in the UK,a third of take-up has been from new entrants to the Central London market.We have seen 20%of deals involve occupiers shrinking their officefootprint in C

110、entral London throughout this period.However,we predict that most companies that wanted to downsize post-pandemic have already done so,therefore we feel the market has right-sized going into 2025.Moreover,our forecasts suggest a return to growth in 2025 for office-based employment in the UK office m

111、arkets tracked by CBRE.This,coupled with the general improvement in the macroeconomic backdrop,is expected to driveincreased take-up in 2025.0.00.10.20.30.40.50.60.70.82016 2017 2018 2019 2020 2021 2022 2023 2024Million sq ftQ1Q2Q3Q4Figure 5:Major UK regional cities,flex office operator take-up 2012

112、 2024 Q3CONTINUED GROWTH IN OFFICE LEASING EXPECTED IN 202521CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKLARGE LOT SIZES AND OVERSEAS INVESTORS RETURNING TO THE MARKET In the second half of 2024 we started to see a return of larger lot-size deals transact.In t

113、he Central London market,we saw the first deal of the year over 150m transact in September,the purchase of Atlantic House,EC1.In October,90 High Holborn was acquired,making it the second deal to transact above this level in 2024 in Central London.In Leeds,Ashtrom Properties purchased Central Square

114、for 78m,the largest deal to transact in the market since Q1 2022.We expect this trend to continue in 2025,with several larger lot-size deals currently in hand and in the market across the UK.This will boost the average lot size and,in turn,the overall volumes in 2025.With an increase in liquidity an

115、d greater price discovery in 2025,there will be several developer and property companies looking to sell stabilised assets in the regions,who had been holding back sales in 2023 and 2024.We expect to see a mixture of European funds,domestic funds,and well-capitalised global family offices to form th

116、e buyer pool in 2025.Central London usually anticipates foreign buyers to dominate the market.However,in 2024,the majority of investors have been domestic(58%).This is likely to prove an outlier.We expect the share of foreign investment to increase again,returning to the long-term trend level.Source

117、:CBRE ResearchInvestment volumes remained relatively muted throughout 2024,albeit around10%higher than in 2023,totalling approximately 10.5bn for the full year.The continued low levels of activity throughout the year largely reflected the high-interest rate environment.For example,the indicative all

118、-in cost of debt for prime stabilised office assets averaged 5.8%in 2024,rising from 2.1%at the end of 2020.However,the costs of debt started to edge down,following the BoEs first rate cut in August.And this,with the expectation of further cuts,boosted activity slightly.This trend willcontinue throu

119、ghout 2025 as the BoE continue to cut interest rates.We expect the full cost of debt for prime stabilised office assets to fall from the current level of 5.62%to 4.79%by the end of 2025.UK office yields have remained largely stable throughout 2024 and will remain so until 2025,when they are expected

120、 to start slowly compressing in most UK office markets in anticipation of further interest rate cuts.0123456782020 Q32021 Q12021 Q32022 Q12022 Q32023 Q12023 Q32024 Q12024 Q32025 Q12025 Q32026 Q12026 Q32027 Q12027 Q3%All-in rate,%ForecastOPERATING ENVIRONMENT BECOMES INCREASINGLY FAVOURABLE FOR INVES

121、TORSFigure 6:All-in cost of debt(%),prime stabilised UK office assetsIndustrial&Logistics23CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKInvestment volumes are expected to rise in 2025.Building on a healthy market for smaller assets,there will also be increased

122、demand for larger lot sizes.As a result,yield compression is expected to become more consistent throughout regions.05The trend of flight to quality assets is expected to continue as caution surrounding assets obsolescence grows.04Prime rents will continue to grow,albeit at a more modest pace than se

123、en in recent years,however incentive packages may grow given the amount of available stock in the market.03Given steady occupier demand and reductions to the development pipeline,the UK vacancy rate will continue to stabilise throughout 2025.02With a stable economic backdrop,we expect occupier activ

124、ity in 2025 to remain consistent with the levels seen this year.The retail sector will likely be particularly active with upgrading assets to enhance operations.01Key takeaways23CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK24CBRE RESEARCH 2024 CBRE,INC.Intellig

125、ent InvestmentReal Estate Market Outlook 2025|UKVACANCY RATE EXPECTED TO STABILISE,PROVIDED DEVELOPMENT ACTIVITY DOES NOT SURGEThroughout 2024,the UK logistics vacancy rate has returned to levels seen at the start of the year,standing at 5.3%,indicating the market has begun to stabilise.However,this

126、 trend is not consistent across the regions.The North West vacancy rate is now below levels a year ago,whereas the current East Midlands vacancy rate is the highest on record.This is partly driven by variances in recent completion levels.While the North West has seen one of the lowest levels of new

127、stock,the East Midlands has seen the second highest stock rise year to date.Looking ahead at potential future supply,the space currently under construction increased throughout 2024 and currently stands at 25.5m sq ft.However,53%of the space under construction is assigned as BTS units,with 5 XXL dev

128、elopments accounting for 60%of this.The amount of speculative space under construction is 14%below the same time last year.Given that the development pipeline has reduced and occupier activity is expected to remain consistent with the levels seen this year,we anticipate that the UK vacancy rate will

129、 continue to stabilise throughout 2025 and perhaps even see compression in some regions.Source:CBRE Research0246810Q3 2023Q4 2023Q1 2024Q2 2024Q3 2024Million sq ftSecondhandBuilt-to-suitSpeculativeThere has been a pick up in occupier activity in 2024.While the average deal size has remained broadly

130、consistent with last year at 260,000 sq ft,total take-up is around 20%higher.The average quarterly take-up is now consistent with the pre-pandemic trend.However,deals are continuing to take longer to complete.3PLs continue to account for the largest share of take-up,with demand predominantly driven

131、by operators expanding their multi-user networks as opposed to larger dedicated contract wins.This is reflective of occupiers looking to outsource to cheaper and more flexible supply chain solutions with aims to reduce costs.Retailers have accounted for a greater share of take-up this year.Activity

132、within this sector is expected to continue into 2025,with many considering automation and tech enhancements to deliver a best-in-class omnichannel service to consumers alongside business cost savings.After significant expansion during the pandemic,we have seen online retailer activity slow in recent

133、 years.In the year ahead,we anticipate a slight pick up in activity from this occupier group.The amount of space under offer currently exceeds 14m sq ft,indicating a robust pipeline of take-up in the coming quarters.Based on our predictions of a stable economic backdrop,we expect that occupier activ

134、ity in 2025 will be broadly consistentwith this year.Source:CBRE Research2.5%3.0%3.5%4.0%4.5%5.0%5.5%6.0%Q3 2023Q4 2023Q1 2024Q2 2024Q3 2024Vacancy rate%Vacancy rateOCCUPIER DEMAND BACK TO BUSINESS AS USUAL Figure 7:UK logistics take-upFigure 8:UK logistics vacancy rate25CBRE RESEARCH 2024 CBRE,INC.

135、Intelligent InvestmentReal Estate Market Outlook 2025|UKYear to date,the UKs prime rent*has grown by 2%.Duringthis period,the strongest rental growth has been in the Yorkshire&North East at+6.1%,followed by Scotland at+5.7%.However,alongside this rental growth,there has been an increasing use of inc

136、entive packages,typically in the form of rent-free terms.This is particularly prevalent in newly completed speculative developments,where incentives will impact the development profits but ultimately protect valuations.Assuming vacancy rates stabilise at around 5%,we anticipate that further prime re

137、ntal growth will be achieved in 2025,albeit at moderated levels of around 2%.Prime assets will continue to become increasingly attractive,with growing caution surrounding asset obsolescence.In our latest European Logistics Occupier Survey,four in ten occupiers stated that between 25-45%of their curr

138、ent portfolio would be obsolete by 2030 if no significant investment to upgrade was made.Properties that can adapt to occupiers evolving requirements,through features such as power availability,sustainability credentials,unit heights,and flooring specifications,will be best positioned to sustain ren

139、tal growth in the year ahead.*weighted by capital valueRENTS WILL CONTINUE TO GROW,BUT AT MODERATED LEVELS26CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKInvestment activity has remained subdued year to date,down 25%year-on-year.While certain assets are achievin

140、g good levels of demand such as multi-lets,there have been fewer larger lot sizes coming to market.However,following the first BoE base rate cut in August,and growing evidence of a relatively stable occupier market,investor sentiment has been on an improving trajectory.Throughout the year there has

141、been a rotating allocation of funding from institutions,which is expected to continue throughout 2025.With further base rate cuts anticipated,were likely to see more core plus investors in the market with many now raising capital.Considering this,we expect an increase in investment volumes in 2025,a

142、nd along with heightened demand for larger lot sizes.In terms of pricing,we have started to see some evidence of yield compression,most notably in the South East.In 2025,this is expected to become more consistent across the regions due to increasing investor activity.During this period of pricing tr

143、ansition,we anticipate due-diligence processes will likely become more aggressive.Source:CBRE ResearchFigure 9:UK logistics investment volumes024681012141618202020202120222023YTD 2024bnINVESTOR SENTIMENT SEES GROWING POSITIVITY,AND ACTIVITY WILL BUILD THROUGHOUT THE YEARData Centres28CBRE RESEARCH 2

144、024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKThe London vacancy rate will decline to 8.8%as providers struggle to keep pace with the demand for data centre space.04Londons data centre supply is expected to grow by 17%in 2025,as new facilities meant for hyperscalers and AI pro

145、viders are expected to open.Hyperscalers are looking to expand their footprint in the capital and need data centre space to do so.03Take-up of colocation data centre space in London is expected to reach an all-time high of 171MW in 2025 given strong demand from hyperscalers and providers of AI/high-

146、performance computing services.0201Key takeaways0528CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKDespite the lack of suitable capacity in London,demand for space suitable to house equipment designated for AI purposes will grow.Hyperscalers and their data centre

147、 developer partners are looking further afield for powered land that will meet their growing needs for capacity.29CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKHowever,due to its size and the noted lack of available resource,the market is less likely to grow at

148、the same rate as the largest of European metro markets,namely Frankfurt(26%)and Paris(18%),next year.Providers looking to meet the demand for space in Slough,for example,will struggle to do so as new sources of power are not expected for years.With strong demand and a shortage of space,availability

149、is expected to decline for the fourth consecutive year in 2025.Consequently,the vacancy rate in London is likely to remain below10%,which is unusually low by historical standards.Development is expected to accelerate in select smaller UK markets.For example,Kao Data started construction on a 40MW da

150、ta centre in Manchester in October.Hyperscalers and their data centre developer partners are looking further afield for powered land that will meet their growing needs.Microsoft announced in February that it had acquired land in the North East of England where there has been little data centre activ

151、ity of consequence.In addition,data centre developer QTS is under offer on the Britishvolt-owned site in Cambois.The growth of the colocation data centre market in the UK is expected to continue unabated in 2025 despite the considerable challenges in delivering new facilities in London.London is exp

152、ected to account for most of the UKs supply growth,which is unsurprising,given the capital city represents about 80%of the countrys colocation data centre market.In 2025,Londons data centre supply is expected to grow by 17%,as new facilities meant for hyperscalers and AI providers are expected to op

153、en.Hyperscalers are looking to expand their footprint in the capital and need data centre space to do so.Investors continue to show strong interest in London due to its selling points,such as skilled labour,the ability to serve leading organisations,and excellent connectivity.Data centre providers a

154、re finding themselves restricted by a lack of available power and land in Londons western corridor.London remains Europes largest data centre market when total supply is considered.STRONG DATA CENTRE GROWTH EXPECTEDSource:CBRE Research02040608010012014016018020202021202220232024F2025FMWFigure 10:Lon

155、don new supply(MW)2019 2025FRetail31CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKRetailers will continue to display confidence in bricks-and-mortar retail through strategicinvestment acquisitions.05Retail Parks are expected to lead investment in the sector in 2

156、025,but the growing positive sentiment surrounding Shopping Centres is likely to deliver increased activity.Strong demand for prime Central London assets will be maintained.04Prime space will become increasingly scarce in the year ahead,resulting in continued rental growth in the most attractive loc

157、ations.Retailers may also start to explore secondary locations.03The UK online penetration will continue to grow organically but retailers introduction of online return fees may temper this growth.Physical retail will remain a core component of occupiers business strategies.02Modest sales growth is

158、anticipated in 2025,driven by an increase in real household income and further base rate cuts.01Key takeaways31CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK32CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKONLINE PENETRATION

159、CONTINUES TO SEE ORGANIC GROWTHThe UK online penetration has grown modestly throughout the year.According to the latest ONS results,27.7%of all retail sales in the UK occurred online,up from 25.8%in January.Looking to 2025,online penetrations are expected to see continued organic growth,driven by un

160、derlying demographic trends.However,several retailers introduced return fees to mitigate the costs of serial returners,which now account for 11%of shoppers,according to Retail Economics.This could dampen online sales growth particularly in the fast fashion sector.Such initiatives are expected to fur

161、ther enhance the appeal of Retail Park locations.Their convenience,coupled with free parking,position them as ideal hubs for click-and-collect and free in-store returns for consumers.Although consumer confidence dipped towards the end of 2024,sales volumes have broadly continued to improve throughou

162、t the course of the year.During 2025,sales are expected to see further modest growth,driven by an increase in real household income.Additional base rate cuts should also help stimulate consumer spending.However,performance will remain nuanced across product categories.Despite improving macroeconomic

163、 conditions,discount retailers are expected to continue to perform well as consumers remain focused on value for money.This said,after a few years of cautious spending on high-cost items like household goods,we anticipate sales in this sector to pick up due to the improving housing market.Sales grow

164、th will be further supported by the increasing offering of Buy Now,Pay Later services by retailers.The Health&Beauty sector is also predicted to see continued success in 2025.Third party beauty retailers will remain popular as they continue to flex their product offerings according to consumer deman

165、d.Although some of the major sportswear occupiers have begun to report a slowdown in sales performance after a strong few years,we anticipate the sector will continue to outperform the wider clothing market in the year ahead.Figure 11:UK consumer confidence Figure 12 UK retail sales volumes excl.fue

166、l(Index 2022=100)Source:CBRE Research,ONSSource:CBRE Research,GfK-50-40-30-20-100Jan-23Mar-23May-23Jul-23Sep-23Nov-23Jan-24Mar-24May-24Jul-24Sep-24Nov-24MODERATE GROWTH IN SALES IS EXPECTED 949596979899100Jan-23Mar-23May-23Jul-23Sep-23Nov-23Jan-24Mar-24May-24Jul-24Sep-24Index 100=202233CBRE RESEARCH

167、 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKWith a relatively buoyant occupier market,we expect prime rents will continue to grow in the year ahead.Retail Parks are predicted to see the strongest growth of all sub-sectors,followed by more modest rises in Shopping Centres a

168、nd High Streets.Recent CBRE analysis highlights that turnover rents remain prevalent in prime Shopping Centre leasing,a trend which is expected to continue in 2025.Although further portfolio expansion is anticipated,delivering cost efficiencies will remain a key focus for retailers in 2025,with upco

169、ming increases on the horizon.In the Autumn Budget,the Government cut the Retail,Hospitality and Leisure business rates relief scheme from 75%to 40%,a change that will affect small retailers the most.Alongside this,the Government also launched a policy paper which discusses reforms to the business r

170、ates system,with intentions of protecting the high street.While proposals hope to lower the business rates multiplier from 2026-27 for properties under a rateable value threshold of 500,000,this will be balanced by a higher multiplier for more valuable properties.Retailers will also need to meet ris

171、ing employment costs,driven by the increase in National Insurance contributions for employers and the upcoming rise in the National Living Wage.In 2024,the all-sector vacancy rate remained stable,though variances exist across the sub-sectors.Looking to the year ahead,we may start to see some compres

172、sion of this metric.Retail Parks continue to exhibit the lowest vacancy rate,consistently declining since 2021.This sub-sector has seen a growing breadth of occupier demand.For example,traditional high-street retailers such as Mango,Rituals,Primark,and Flannels have all recently opted for Retail Par

173、k space,as well as new U.S.fast-food market entrants such as Popeyes,Wendys,and Wingstop.And in CBREs 2024 European Retail Occupier Survey,45%of retailers stated that Retail Parks were their preferred sub-sector for future store locations.Even with the release of stock earlier this year,driven by th

174、e Carpetright and Homebase administrations,demand continues to outstrip supply in many locations.As such,we expect Retail Park vacancy rates will continue to remain under pressure in 2025.While average in-town vacancy rates for High Streets and Shopping Centres remain elevated,prime locations are ma

175、intaining their appeal.Many prime Shopping Centres are now nearing full occupancy.Alongside business-as-usual portfolio expansion,these assets continue to see occupiers in particular,fashion and sportswear brands upsizing units to deliver best-in-class experiences.They also continue to attract large

176、 space users such as multi-experience leisure operators,which offer a range of activities that can be adapted dependent on evolving consumer trends.Prime in-town vacancy rates are expected to remain tight in the year ahead.Given the scarcity of available of space,we may see some retailers start to e

177、xplore secondary locations in 2025.VACANCY RATES MAY SEE SOME COMPRESSION AS PRIME LOCATIONS REMAIN IN DEMAND34CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKOf all the retail sub-sectors,Retail Parks continue to deliver the strongest investment activity.Outside

178、of the core buyer groups such as UK institutions and REITs,retailers have become an emerging buyer group this year.Several retailers are now purchasing freehold investments to help support store openings,and in some cases,build investment portfolios outside of the companys own requirements.Throughou

179、t the year,the prime Retail Park yield has compressed by 75bps,driven by competitive bidding.In 2025,we expect Retail Parks will remain the favoured retail sub-sector for many investors.Improved pricing is likely to act as a trigger for sales,particularly from the large portfolios that were acquired

180、 at the bottom of the market a few years ago.Year to date,Shopping Centres investment volumes have risen year-on-year,characterised by a deeper pool of buyers and revitalised sentiment.Many of this years largest transactions have been led by investors extending their joint venture position,such as M

181、&G increasing its stake of Cribbs Causeway to 100%.As with Retail Parks,we have also seen retailers venturing into the Shopping Centre investment market,demonstrating their continued confidence in bricks-and-mortar retail.In 2025,following improving sentiment and further pricing evidence,we anticipa

182、te more Shopping Centre stock is likely to come to market.Investor sentiment has remained positive towards the Grocery sector throughout 2024.While year-to-date transaction volumes are understandably lower than the record levels set in 2023 fuelled by sale-and-leaseback transactions,the full-year to

183、tal is expected to approach the sectors 10-year average.In 2025 the sector will continue to garner attention from a range of investors.High Streets continue to account for the smallest share of retail investment,partly driven by the limited availability of larger lots.However,Central London assets r

184、emain a core focus for many investors.With strong occupational demand,full-year investment volumes remain on track to exceed those of last year.Next year,demand for prime Central London assets is expected to continue as the occupational market maintains its strength and the cost of capital reduces.I

185、n our Luxury Real Estate 2024 report,we also predict that the own-to-occupy trend will continue in luxury locations such as Bond Street,driven by the desire to secure a long-term presence in key locations.Outside of London,we may also see increased high street investment activity in core cathedral c

186、ities.Source:CBRE ResearchFigure 13:UK retail investment profile(2024 YTD)37%26%17%10%9%0%10%20%30%40%50%60%70%80%90%100%Retail ParkShopping CentreGroceryOtherHigh StreetIMPROVING INVESTOR SENTIMENT FOR SHOPPING CENTRES AND PERSISTENT STRONG DEMAND FOR RETAIL PARKSLivingResidential Sales37CBRE RESEA

187、RCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKThe Labour Government has taken action to remedy the planning system,but there is a long way to go before this translates into a substantial increase in housing delivery.The planning pipeline is continuing to contract,with the

188、 rolling annual number of permissions granted at its lowest level in ten years.As a result,housing supply will fall significantly short of target in 2025.04Developers are still facing a range of market challenges,including higher financing costs and skills shortages.Constructions costs remain high,b

189、ut inflation appears to have subsided,which will help development viability.03We expect a further decline in mortgage rates throughout 2025.This willimprove buyer affordability and is key to the continued recovery of sales volumes and house prices.Acrossthe UK we forecast sales volumes to return to

190、their long-run average of 1.2 million,and for house prices to increase by 3.5%in 2025.02The outlook for residential sales has improved significantly.The market has been buoyed by lower mortgage rates and mortgage approvals have been at their highest levels in 18 months.In addition,the reversion to t

191、he old Stamp Duty rates in Aprilnext year will cause a spike in sales volumes in Q1 2025,especially amongst first-time buyers in London.These factors should convert to higher sales volumes in the first part of 2025.01Key takeaways37CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market

192、 Outlook 2025|UK38CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKStill,there are headwinds.For example,the Mortgage Guarantee Scheme ends in June next year.However,it has only accounted for 2%of all mortgage approvals since its introduction in April 2021.Hence,wh

193、ile it will support sales in a small part in the first half of 2025,its removal wont be a significant impact.The current higher nil-rate Stamp Duty threshold levels will revert to the previous levels in April 2025.This could lead to a surge in activity in the first quarter of the year.The surge woul

194、d be concentrated to first-time buyers in London who will face a considerably higher Stamp Duty bill from next April.Still,on balance,improving mortgage affordability will continue to fuel a recovery in sales activity.It will also mean loan-to-income ratios will increase throughout next year,which,c

195、ombined with robust wage growth,will drive house price growth.For these reasons,in 2025 we expect UK house sales to return to their long-run average of 1.2 million,and for UK house prices to increase by 3.5%.Source:UK FinanceFigure 14:Proportion of lump sum mortgage payments(as%of total mortgage pay

196、ments)and interest rates(%)Sentiment across the housing market gradually improved throughout 2024,particularly in the second half of the year as mortgage rates began to fall.This is starting to feed through to activity,with mortgage approvals reaching their highest level for 18 months and sales are

197、up marginally compared with 2023.The consistent fall in average mortgage rates since June has improved buyers budgets and is giving both buyers and sellers more confidence and certainty to transact.As a result,both sales and price expectations have returned to positive territory,after almost three y

198、ears of negative readings.This points to an optimistic outlook for the housing market in 2025.Trends in lump-sum mortgage payments also provides further evidence of positive market sentiment.When homeowners are uncertain about the future path of interest rates,they tend to make more lump-sum payment

199、s(to minimise the impact of any potential rate rises).The proportion of lump-sum mortgage payments was significantly above average through 2023,peaking at 13%in May 2023.As the market is perceived to be more stable,overpayments have now returned to their long-run average.We expect mortgage rates to

200、fall further in 2025.We forecast the average interest rate on a 75%loan-to-value mortgage fixed for two years,will reach 3.4%by Q4 2025.This is 120bps lower than current pricing.These more preferential rates will boost activity through 2025.0 2 4 6 8 10 12 14Jan-14Sep-14May-15Jan-16Sep-16May-17Jan-1

201、8Sep-18May-19Jan-20Sep-20May-21Jan-22Sep-22May-23Jan-24Sep-24Lump sum mortgage payments as%of totalBase rateMortgage rate,75%LTV,2 year fixPOSITIVE OUTLOOK AS MORTGAGE MARKET IMPROVES39CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKSource:ONS,Home Builders Federa

202、tionFigure 15:Permissions granted,net additional dwellings and housing targetsLabours consultation to reform the National Planning Policy Framework(NPPF)demonstrated swift action to tackle one of the most widely-acknowledged barriers to housebuilding.The proposed reforms include an updated nationwid

203、e housebuilding target of 370,000 homes per annum,up from the current target of 300,000.However,this level of housebuilding in the UK has been unachievable since 1969.Moreover,the number of permissions granted have been on a consistent downward trend since 2021,and recently reached the lowest level

204、in ten years.While the reforms to the NPPF are positive signs that the Government is trying to facilitate the creation of new stock,it wont have an immediateimpact on housebuilding.Supply will also be hindered by the broader challenges that housebuilders will continue to facein 2025.Namely,a higher

205、cost of debt and labour shortages.Positively,however,construction cost inflation has stabilised,with a projected range of between 2.0%-3.5%in 2025,according to Turner&Townsends International Construction Market Survey.This will improve development viability in some instances.Overall,housebuilding wi

206、ll remain muted in 2025.Based on our analysis of planning permissions there could be only 124,000 new homes built in 2025;a third of Labours new target.050,000100,000150,000200,000250,000300,000350,000400,000Q1 2008Q3 2008Q1 2009Q3 2009Q1 2010Q3 2010Q1 2011Q3 2011Q1 2012Q3 2012Q1 2013Q3 2013Q1 2014Q

207、3 2014Q1 2015Q3 2015Q1 2016Q3 2016Q1 2017Q3 2017Q1 2018Q3 2018Q1 2019Q3 2019Q1 2020Q3 2020Q1 2021Q3 2021Q1 2022Q3 2022Q1 2023Q3 2023Q1 2024Permanent dwellings completedPermissions GrantedCurrent targetNew target under proposed NPPFNEW HOUSEBUILDING TARGET,BUT CONTINUED SHORTFALLBuild-to-Rent(BTR)41C

208、BRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKBTR yields are now broadly stable after expanding throughout the tightening cycle.This is providing greater pricing certainty to investors.As the BoE reduces the base rate,thereby lowering the risk-free rate,yields ac

209、ross the sector are expected to contract in 2025.05The improving economy and stable political backdrop will boost BTR investor appetite in 2025.Falling interest rates and lower construction cost inflation will also encourage pent-up capital to be deployed.More stabilised assets and portfolios will a

210、lso come to the market next year which will further underpin investment volumes.04As a result,the demand and supply imbalance will persist in 2025,and will continueto underpin rental inflation.However,rental growth will be tempered by constrained tenant affordability and the lower rate of headline i

211、nflation feeding through to tenancy agreements.As such,we forecast the pace of rental growth to decline in 2025 to 2.3%at the headline level,though BTR rental growth is expected to outperform this.03The BTR pipeline has also fallen recently as developers face a combination of challenges including hi

212、gher financing costs,prohibitive planning environments,and building safety legislation.Assuming the 50,000 homes currently being built complete throughout 2025,would bring the total completed BTR stock to approximately 170,000 homes.But this does not plug the gap left by private landlords leaving th

213、e sector.02Demand for rental accommodation will remain strong in 2025.However,supply challenges remain,compounded by the Renters Rights Bill and the additional 2%Stamp Duty surcharge on second homes.Furthermore,the new energy efficiency regulations are a positive step to improving the quality of hom

214、es in the sector,but it may lead to some landlords selling their stock.This will further exacerbate the supply and demand imbalance.01Key takeaways41CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK42CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Mar

215、ket Outlook 2025|UKSource:UK Finance,Bank of England,CBRE ResearchFigure 16:Net reduction in outstanding buy-to-let loans and Bank of England base rateLandlord instructions have continued to decline consistently,according to the Royal Institute of Chartered Surveyors(RICS).This is causing a persiste

216、nt shortage of rental properties which has contributed to annual rental growth reaching an all-time high in 2024.However,this has resulted in affordability becoming stretched for tenants,which,combined with lower headline inflation,has meant the pace of rental growth has begun to slow.This trend wil

217、l continue in 2025,with headline rental inflation forecast to slow to 2.3%.However,the results of CBREs Multifamily Index indicate that the BTR sector could outperform this.From next year,new energy efficiency regulations(which will require rental properties to have a minimum Energy Performance Rati

218、ng of C or higher)may compound the supply issue.We estimate that this could result in around one million PRS homes becoming unlettable by 2030.Furthermore,the Renters Rights Bill will introduce new measures to improve the PRS and rights of tenants.However,the extra financial and/or administrative bu

219、rden could lead to some landlords leaving the market in 2025.Lastly,the additional 2%Stamp Duty surcharge on second homes willdeter landlords from entering the market or expanding their portfolios.BTR supply will continue to be constrained in 2025 and wont bridge this supply gap.Since the start of 2

220、022 there has been an estimated net loss of 280,000 buy-to-let homes.To date,only 120,000 BTR homes have been built,which highlights that rental supply is not being replaced quickly enough.Furthermore,the BTR pipeline has fallen year-on-year,as developers face higher financing costs,prohibitive plan

221、ning environments,and labour costs.The implications of the Building Safety Act,particularly Gateway Two,provides further challenges.This points to a further slowdown in BTR completions in 2025.All these factors combined means the acute supply and demand imbalance in the rental market will persist ne

222、xt year.0123456-300,000-250,000-200,000-150,000-100,000-50,0000JanFebMarAprMayJunJulAugSepOctNovDecJanFebMarAprMayJunJulAugSepOctNovDecJanFebMarAprMayJuneJulyAugust202220232024Cumulative change in BtL loans,LHSBase rate(%),RHSSUPPLY WILL SHRINK BUT RENT INFLATION WILL SLOW 43CBRE RESEARCH 2024 CBRE,

223、INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKIts also likely that more stabilised SFH portfolios will trade in 2025.This was recently evidenced,by the acquisition of the Gatehouse/Sigma portfolio by Lloyds Living.The recognition from housebuilders that single-family can assist with th

224、e overall delivery on development sites will also help to underpin investment in 2025.The sector offers additionality to housebuilders and helps to drive absorption and placemaking on larger sites.One challenge,however,is the improving sales market for single family homes.This could mean housebuilde

225、rs retrench in 2025,or demand more competitive pricing,resulting in yield compression on forward-funding transactions.There may also be further consolidation across the BTR market in 2025,as it continues to mature.Sustainability also remains at the forefront of investors minds.Institutional investor

226、s favour future-proofed energy efficient homes that have the potential to qualify as Zero Bills,which is a major draw for tenants.Overall,the outlook for the BTR market is optimistic for 2025.The improving macro-environment,coupled with broad political support for the sector,will buoy investor confi

227、dence.In addition,a strong return outlook,greater pricing certainty,and potential yield contraction will underpin investment into the sector in 2025.Source:CBRE;Note:(p)=projectedFigure 17:Single-Family Build-to-Rent Investment,UK(millions)BTR investment has been lower than originally anticipated in

228、 2024,as investors continued to face a range of challenges common across the Living sector.However,falling interest rates,a stable political backdrop,and strong fundamentals means sentiment has turned more positive as we head into 2025.There is already more investor activity in London,for example,wi

229、th some transactions set to finalise in early 2025.We estimate approximately 1.4bn of deals under offer at the time of writing.As we move into next year,there is a wall of capital waiting to be deployed.And with around 4.2bn of opportunities on the market,we expect investment volumes in the BTR mark

230、et to grow in 2025,particularly as interest rates fall.Specifically,Single Family Housing(SFH)BTR will remain in high demand.Investment into the sector was up around 20%in 2024.This contrasts with multifamily BTR,where volumes were down 10%,and approximately 40%of the current under offer pipeline is

231、 for SFH.SFH investors are currently limited to a relatively small pool of institutional funds,but the number of new entrants is likely to expand in 2025.This was most recently illustrated with the announcement that CPP Investments and Kennedy Wilson have formed a joint venture to create a 1bn SFH p

232、ortfolio across the UK.STRONG INVESTOR APPETITE HEADING INTO 202505001,0001,5002,0002,5003,0003,5004,0004,50005001,0001,5002,0002,5002021202220232024(p)MillionsSingle family BTR investmentCumulative single family BTR investmentAffordable Housing45CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentRea

233、l Estate Market Outlook 2025|UKThere is broad support for the sector and political recognition of the need to bolster affordable supply.Private capital is expected to continue to deploy capital into the delivery of new affordable homes.05The continued challenges throughout 2025 are likely to drive f

234、urther mergers and acquisitions across the sector.Stock rationalisations will also remain prominent,particularly in a higher interest rate environment as providers seek to achieve operational efficiencies and raise capital.04The social rent settlement confirmed in the Autumn Budget is positive.Howev

235、er,a longer-term settlement,giving more certainty over cashflows,would have encouraged further investment by both RPs and investors.Other measures,including increasing funding for the Affordable Homes Programme,will further support housing delivery across the sector in 2025.03Traditional Registered

236、Providers(RPs)will need to continue focussing on their existing portfolios.As such,they will be constrained in delivering new supply,and investment will be weighted to for-profit providers.02The sectors strong fundamentals,coupled with the improving interest rate environment and Government support,w

237、ill translate into a robust level of activity in the affordable housing sector in 2025.01Key takeaways45CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK46CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKTraditional providers will

238、 also continue to be impacted by other market forces and regulation.A combination of refinancing at higher rates,a new set of consumer standards,and energy efficiency regulation,will contribute to a higher-cost base for many traditional RPs.The combination of these costs has had a notable impact on

239、providers finances,with interest coverage from operating cashflows falling dramatically.This will unfortunately continue to hamper the overall number of homes which can be delivered by many RPs into 2025.Any spending on new development will also remain concentrated to a small number of providers.For

240、 example,the Regulator of Social Housing noted that the forecast investment(of 16.2bn)was up 6%quarter-on-quarter in June 2024.However,this was almost entirely attributable to one provider who submitted data for the first time,accounting for almost 95%of the overall increase.Asa result,there were 3,

241、790 Affordable Home Ownership homes completed in Q2 2024,the lowest level since September 2020.Source:Regulator of Social HousingFigure 18:Interest cover from operating expensesInvestment appetite for affordable housing in the UK will remain healthy in 2025.However,it will continue to be driven by t

242、he for-profit RPs that are not financially burdened by legacy stock and hence can continue to expand their portfolios.The Regulator for Social Housing has recorded a notable increase in for-profit activity within the sector,with five providers accounting for almost 10%of total development spend in t

243、he year to June 2024.This will continue into 2025.The confirmation that social rents can increase above inflation for the next five years will also encourage further investment into the sector.This will support business planning and investment into new homes by providing certainty over cash flows to

244、 RPs and councils.In contrast,many traditional RPs will need to continue retrofitting and upgrading their existing portfolios,which is increasingly costly.In its latest survey,the Regulator of Social Housing noted that the 12-month(actual and forecast)spend on capital works was at a record high.In t

245、he year to June,a total of 8.2bn was spent on repairs and maintenance,with 9.3bn forecast over the next 12 months into 2025.60%70%80%90%100%110%120%130%2022/23-Q12022/23-Q22022/23-Q32022/23-Q42023/24-Q12023/24-Q22023/24-Q32023/24-Q42024/25-Q12024/25-Q22024/25-Q32024/25-Q42025/26-Q1Interest covereg r

246、atio12-month outturn Interest Cover12-month ave.(inc.forecast data)INVESTMENT CONCENTRATED TO FOR-PROFIT PROVIDERS47CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKSource:UK Finance,Bank of England,CBRE ResearchFigure 19:Payments to acquire and develop affordable

247、housingAs a result of these continued challenges,further mergers and acquisitions across the sector are likely in 2025.In addition,with interest coverage ratios falling,many providers will have to consider the sale of existing assets to bridge the cash shortfall,which averaged 217m per quarter in th

248、e year to June 2024.This will mean the stock rationalisation market will also be very active in 2025,with both for-profit and not-for-profit providers focused on this segment.Its likely that new solutions to affordable housebuilding will continue to materialise in 2025.This could be in the form of i

249、nvestors partnering with RPsto either fund new development or provide capital to acquire existing stockto expand portfolios.Nevertheless,there is cause for optimism across the sector.Firstly,in recognition of the cost burden on RPs,Lloyds and Barclays will be providing 1bn of funding to accelerate t

250、he retrofitting of social housing across the UK.In addition,a further 1bn will be made available to fund new council homes.This will be released over the next 18 months and throughout 2025,which could significantly bolster the supply of affordable homes.Specifically,the recent Budget was positive fo

251、r the sector,with a significant top-up for the Affordable Homes Programme among other measures.While the affordable housing sector will continue to face challenges into 2025,there is broad support for the sector.The outlook for investment into the sector in 2025 remains optimistic,particularly as pr

252、ivate capital continues to deploy capital into the delivery of new affordable homes.However,despite the political recognition of the need to bolster affordable supply,we are unlikely to see any impact materialise in 2025.0123452022/23-Q22022/23-Q32022/23-Q42023/24-Q12023/24-Q22023/24-Q32023/24-Q4202

253、4/25-Q12024/25-Q22024/25-Q32024/25-Q42025/26-Q1 billionForecast commitedForecast uncomittedActualSTOCK RATIONALISATION TO REMAIN PROMINENTPurpose-Built Student Accommodation(PBSA)49CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKInvestment is expected to pick up i

254、n 2025,driven by a range of factors including falling interest rates and broad political support for the PBSA sector.Asset management opportunities will also remain favourable,and as forward-funding remains unviable,joint ventures will be more common in 2025.04Occupancy is expected to remain strong

255、in 2025,but some markets with higher supply will be more price sensitive.Overall,rent growth is expected to remain robust and in-line with the long-run average.03The supply of PBSA will continue to be constrained by several factors,resulting in an estimated shortfall of 620,000 beds across the UK in

256、 2025.The current pipeline is also concentrated in towns and cities with a Russell Group University.02The continued growth of the student age population,along with a forecast recovery in non-EU students will drive strong demand for PBSA next year.Upcoming caps on student numbers in some countries wi

257、ll also create additional demand to study in the UK.The increase in tuition fees confirmed in the Budget should not have a significant impact on the overall demand for university places.01Key takeaways49CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK50CBRE RESEAR

258、CH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKDemand for PBSA will remain strong in 2025,with the population of 18-year-olds forecast to continue rising to 2030.Demand from non-EU students is also likely to recover,as Labour reaffirmed its welcoming stance towards internat

259、ional students and confirmed that post-study visas will remain in place.In addition,upcoming caps on international students in Canada and Australia will further enhance the UKs appeal as a study destination.In contrast,PBSA supply will continue to be constrained and there will be an estimated shortf

260、all of c.620,000 student beds across the UK in 2025.Currently,only 50,000 beds are forecast to be delivered over the next five years.And this is concentrated in cities that host a Russell Group university,which are typically in higher demand from international students.Viability will also remain cha

261、llenging,with higher build costs,building safety requirements,sustainability measures,and increasingly challenging planning environments all negatively impacting development.The falling supply across the wider PRS will also result in a continued loss of Homes for Multiple Occupation(HMO)for students

262、.This lack of HMO supply is likely to be furthercompounded by the additional surcharge on second properties announced in the Budget.As a result of the anticipated increase in demand and greater constraints on supply,the supply and demand imbalance for PBSA is expected to worsen in several UK markets

263、 in 2025.SUPPLY AND DEMAND IMBALANCE TO WORSENSource:CBRE,UK Local Authority Planning PortalsFigure 20:UK PBSA beds,actual and forecast0100,000200,000300,000400,000500,000600,000700,000800,000900,00005,00010,00015,00020,00025,00030,00035,00040,00045,0002015 2016 2017 2018 2019 2020 2021 2022 2023 20

264、24 2025 2026 2027 2028 2029Annual Delivery(LHS)Russell Group City Annual Delivery(LHS)Non-Russell Group City Annual Delivery(LHS)Total delivered(RHS)Forecast(RHS)51CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKOccupancy for the 2024/25 academic year has remained

265、 strong,with major entities reporting positive results.For example,Unite recorded an occupancy rate of 97.5%in its Q3 trading update.Albeit 57%of its portfolio is nominated.Occupancy is anticipated to remain strong at a national level,although rents will remain sensitive in some markets where a sign

266、ificant number of beds have been delivered at similar price points.Overall,rent growth at the headline level is forecast to start returning to the long-run average.Unite,for example,is guiding growth of 4-5%for 2025/26.However,there is likely to be a wider variance of growth rates across different m

267、arkets depending on the supply and demand balance,delivery pipeline and planning environment.Investment activity is expected to pick up in 2025,supported by the improving macro-environment and falling interest rates.The combination of strong domestic and international demand,shrinking HMO stock,and

268、a limited development pipeline will also drive continued investment into the sector in 2025.In addition,Labour has articulated its support for the Higher Education sector,which will also boost investor sentiment.Demand will be strongest for best-in-class,sustainable assets with limited safety issues

269、.Asset management opportunities will also remain favourable as they offer lower risk but robust returns.As forward-funding becomes increasingly unviable,joint ventures will become more commonplace for investors wanting higher returns.There will also be opportunities for the private sector to partner

270、 with universities to replace ageing stock.However,the requirement for an increased level of due diligence will continue to delay transactions,especially as building safety regulations continue to be a point of focus.INVESTOR DEMAND TO REMAIN STRONGSource:HESA Student Records 2021/22,Student Crowd,C

271、BREFigure 21:PBSA demand and pipeline010,00020,00030,00040,00050,00060,00070,000NottinghamLeedsCity of EdinburghLiverpoolGlasgow CityCoventryOxfordCambridgeBrighton and HoveNorthern IrelandCounty DurhamBathBournemouthLancasterCharnwoodPrivateUniversityPipelineTarget Market050,000100,000150,000200,00

272、0250,000Greater LondonNo.beds/studentsOperationalReal EstateSenior Living54CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKA core focus for the Labour Government is preventative care and delivering 1.5 million housing units.The senior livingsector can play a vital

273、 part in providing age-appropriate housing solutions that incorporate necessary support.04In 2025,a number of new schemes will reach practical completion,boosting choice for older people with approximately 3,700 units added to the supply.We are seeing an increase in planning applications as confiden

274、ce increases after overcoming as the sector moves out of the challenging construction and debt conditions of the past three years.03With the gradual recovery in the wider residential market and liquidity starting to improve as interest rates started to fall in late 2024,sales velocity for new scheme

275、s started to pick up following a subdued first six months of 2024.Weexpect to see a continuing uptick in reservations and sales through 2025.02There remains strong demand for established,well-operated schemes,with re-sales performing well in 2025 and expansion of operators offering rental options.01

276、Key takeaways54CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK55CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK 50,000 55,000 60,000 65,000 70,000 75,000 80,000 85,000 90,000 95,000 100,000202020212022202320242025Number of IRC

277、 unitsWhile liquidity issues have meant a slightly slower recovery in the senior living sectorcompared with the wider residential market,operators reported an increase in reservations and sales over the second half of 2024.We expect this recovery to continue into 2025,especially as further reduction

278、s in interest rates will have a positive knock-on effect across the wider housing market.Re-sales within established villages have continued to perform well both in terms of completions and price growth.This emphasises the importance of the overall community in senior living schemes rather than simp

279、ly the real estate.A number of operators will be completing on long-awaited schemes across the country,further enhancing the supply within the sector.While the focus remains on the sales model,a number of these schemes will be offering a mix of tenure options including sales,rental and rent before y

280、ou buy,allowing their customers greater flexibility.There has been a scarcity of investment opportunities in the sector,partly attributed to a lack of significant,scalable platforms to invest into.Institutional capital continues to flow into the residential and healthcare markets,drawn by sectors li

281、nked to demographic demand and assets with strong ESG credentials.Given the stage of growth the sector is currently at,we expect 2025 will see the first transactions in the sector of mature villages establishing a proof of concept for the long income retirement villages generate,which investors have

282、 been seeking to help de-risk deployment decisions and encourage greater activity.As part of its commitment to rescue the NHS,the Labour Government has highlighted the importance of preventative care.Integrated Retirement Communities(IRCs)will provide a pivotal role in enabling more options for prev

283、entative care by providing age-appropriate housing within dedicated communities with on-site care provision where needed.SENIOR LIVING WILL PLAY A KEY ROLE IN HOUSING AND CARE POLICIESSource:EAC Housing StandardFigure 22:Integrated Retirement Communities(IRC)Hotels57CBRE RESEARCH 2024 CBRE,INC.Intel

284、ligent InvestmentReal Estate Market Outlook 2025|UKStabilising inflation,multiple base rate cuts,and an accretive debt market is expected to enable hotel operators to drive profitability and offset other continued cost pressures.04Investor sentiment will improve with investment yields to shiftinward

285、s as hotels continue to be an attractive market sector.032025 will see an active investment market,with single asset transactions accounting for the majority of the volume,rather than large portfolios seen in 2024 and as result will see a marginal decline in investment volumes overall.02Hotels will

286、continue to performwell however,RevPAR growth will primarily be driven by occupancy as corporate demand increases,rather than by rate increases.01Key takeaways57CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK58CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentRea

287、l Estate Market Outlook 2025|UKTourism numbers have exceeded pre-COVID levels in both London and the provinces this year,with Heathrow passenger numbers significantly ahead of 2019 levels.This has been a welcome boost for the sector In 2025,we expect to see continued growth in inbound tourism stays.

288、This will be true particularly in London,which will continue to cement its reputation as a global destination for business,entertainment,and events.Furthermore,a shift from the traditional two-week holidays to shorter,more frequent trips abroad is expected going forward,this will further help to dri

289、ve demand in the hotel sector.ALLEVIATING COST PRESSURES The hotel sector has been significantly impacted by inflationary cost increases,particularly in utilities,food and beverage,and payroll,resulting in operational cost pressures across the industry over the past three years.Still,UK headline inf

290、lation is now broadly at it target 2%rate for the first time in three and a half years,so hotel operators will start to see cost pressure alleviate within certain departments.However,proactive revenue management and stringent cost control will still be required to offset other continued inflationary

291、 and operational challenges.REVPAR GROWTH TO CONTINUEDespite record high RevPAR levels achieved in 2024;growth is still expected throughout 2025 at in excess of 3.0%.This will be primarily driven by occupancy both in the London and provincial hotel markets,bolstered by increasing demand from the cor

292、porate segment,a trend that is already being seen.THE RETURN OF TOURISM HAS BOOSTED HOTEL DEMAND Figure 23:Heathrow passenger statisticsSource:Heathrow Airport,CBRE 202401,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,000Jan-15May-15Sep-15Jan-16May-16Sep-16Jan-17May-17Sep-17Jan-

293、18May-18Sep-18Jan-19May-19Sep-19Jan-20May-20Sep-20Jan-21May-21Sep-21Jan-22May-22Sep-22Jan-23May-23Sep-23Jan-24May-24Sep-24Heathrow passenger numbersPassengers(Seasonally Adjusted)59CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKUncertainty in the economic and inv

294、estment landscape has led to reduced transaction volumes and extended hold periods over the past three years.Still,interest rate cuts in the second half of 2024,and the prospect of further cuts in 2025,has boosted investor sentiment within the hotels market.This is coupled with a less volatile debt

295、market,reduced buyer-seller pricing disparity,and stable yield trends.Given this backdrop,we expect a fluid and active investment market throughout the year as demand for hotel real estate continues to be at the forefront of investors strategies.However,the market in 2024 was dominated by an unusual

296、ly high number of large portfolio transactions.We do not expect this trend to continue,so with a resurgence of single asset transactions and fewer portfolio deals in 2025,there will be a marginal decline in overall investment volumes in 2025.STRONG 2024 PROVIDES THE BACKDROP FOR INCREASED TRANSACTIO

297、N ACTIVITY IN 2025 Figure 24:UK hotel prime yieldsFigure 25:UK hotel investment volumeSource:CBRE 2024Source:CBRE 20240.00%2.00%4.00%6.00%8.00%Jan-15 Aug-15 Mar-16 Oct-16 May-17 Dec-17 Jul-18 Feb-19 Sep-19 Apr-20 Nov-20 Jun-21 Jan-22 Aug-22 Mar-23 Oct-23 May-24London Upscale(VP)Provincial Prime Upsc

298、ale(VP)0bn2bn4bn6bn8bn10bn2013201420152016201720182019202020212022202320242025Transaction volumes(bn)LondonProvincialForecastHealthcare61CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKWe expect increasing pricing tension into H1 2025,driven by competition from di

299、fferent pools of capital across the risk spectrum for limited stock.Specialist investment management platforms,with the ability to draw funding from various sources,will create competitive tensions for longstanding investors considering options.04New sources of capital focussing on operational real

300、estate have been key to driving healthcare investment activity within a new interest rate environment.At the core returns end of the spectrum,liability-matching insurance capital has enhanced pricing across the capital stack,and we expect this to be a key driver of investment activity in 2025.Global

301、 strategic investors including PE,wealth managers,and REITs are focussing on larger scale,operational platforms.03Investment activity will increase as economic conditions continue to improve and buyer and seller pricing expectations align.Healthcare will be a focus for real estate investors due to i

302、ts resilient inflationary characteristics and robust returns.The prime healthcare market will be increasingly competitive into H1 2025,while value-add investors are targeting the mid-market to access higher returns through operational performance and active asset management.02Operational performance

303、 will continue to strengthen for many healthcare providers as staffing costs are managed and both demand and revenue growth remain robust.While care worker vacancies remain low,the influx of international care staff has slowed following visa changes,and the best operators continue to invest in domes

304、tic recruitment,training,and retention to ensure care quality and maintain profitability.01Key takeaways61CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK62CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKPRIVATE ACUTE HOSPITALSW

305、e expect operational activity to continue to increase as the NHS works moreclosely with the private sector to reduce waiting lists.This reflectswider Government plans with the Health and Care Act 2022,establishing a legislative framework that supports better integration as a long-term solution.There

306、 has been considerable investment into the private acute hospital sectorin 2024.Notable deals include Song Capitals 631m refinancing of MPTs UK hospital portfolio in Q2,and Assuras 500m acquisition of Northwest Healthcares portfolio of 14 UK hospitals in Q3.Weanticipate increased investor demand in

307、2025 against the backdrop ofrising patient demand and improving operational performance.The long-term structural trend from inpatient to outpatient care will drive demand for specialist diagnostic and post-acute rehabilitation services.Theserequire specialist real estate which may create new investm

308、ent opportunities in the medium to long term.PRIMARY CAREPrimary care investment activity returned in 2024 with Assura and USS announcing a 250m joint venture in Q2,demonstrating the growing demand from institutional investors for healthcare assets.We have also seen new interest from global private

309、equity investors,with primary care being a key part of delivering healthcare services.We expect this increasing demand to continue in 2025,maintaining the current level of investment activity.Relatively slow rental growth and high construction costs have created a barrier to new developments in the

310、primary care market.However,we expect upwards pressure on rental levels as third party investors seek to improve and increase primary care capacity in line with NHS sustainability targets.INVESTMENT OPPORTUNITIES FROM INCREASING PUBLIC/PRIVATE INTEGRATIONFigure 26:Elective activity by independent se

311、ctor providersSource:NHS Digital050,000100,000150,000200,000250,000300,000350,000400,000450,000500,000Aug-21Sep-21Oct-21Nov-21Dec-21Jan-22Feb-22Mar-22Apr-22May-22Jun-22Jul-22Aug-22Sep-22Oct-22Nov-22Dec-22Jan-23Feb-23Mar-23Apr-23May-23Jun-23Jul-23Aug-23Sep-23Oct-23Nov-23Dec-23Jan-24Feb-24Mar-24Apr-24

312、May-24Jun-24InpatientOutpatientDiagnostics63CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKELDERLY CARE HOME INVESTMENT MARKETThe outlook for elderly care investment is positive with a wider range of investors,with access to new sources of capital,engaging in opp

313、ortunities across the quality spectrum.Investment activity will continue to increase as economic conditions improve and as more investors are drawn to the robust demand and real estate dynamics of the sector,and the proven hedge against inflation to offer sustainable long-term cashflows.2024 has see

314、n robust capital markets activity across all aspects of elderly care investment from real estate to platform opportunities,with particular interest from strategic global investors.The premium market will remain competitive as the flight to quality continues across the healthcare sector.We also expec

315、t increased demand for mid-market opportunities where there is the potential to drive value through CapEx and enhancing care offerings.The rationale for mid-market investment includes significant demand,slowed care home development activity in locations with lower relative affluence,and a high numbe

316、r of experienced providers.Experienced providerscan ensure high-quality care and,through their experience and expertise,mitigate operational risks.ELDERLY CARE HOME OPERATIONAL MARKETMany providers are reporting that operational performance of elderly care homes is improving due to strong fee growth

317、 and better managed staff costs.We expect this trend to continue in 2025,particularly for operators with a focus on staff recruitment,retention,and training.Increases to employersNational Insurance contributions in April 2025 will impact staff costs across all operational sectors.We expect private p

318、ay-focussed operators will be able to protect margins through fee increases.Historically,local authorities have increased fees in line with the growth in the national minimum wage and we expect to see continued Government support for homes with local authority funded residents.Although operators mor

319、e reliant on state-funded residents could be more exposed to the risks of residual cost pressures and staffing shortages.Immigration policy changes in early 2024 restricted care workers from bringing dependents when they migrate to the UK.This slowed the influx of overseas care staff and represents

320、a potential ongoing risk to sustaining strong operational performance.Despite this,the adult social care vacancy rate across the UK now sits below pre-COVID levels.INCREASING INVESTOR DEMAND ACROSS THE QUALITY SPECTRUM0%2%4%6%8%2017/182018/192019/202020/212021/222022/232023/24Apr 2024May 2024Jun 202

321、4Jul 2024Aug 2024Sep 2024Care homes with nursingCare homes without nursingSource:Skills for CareFigure 27:Adult social care staff vacancy rate64CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKSPECIALIST CARE HOMESSpecialist care services are traditionally more sta

322、ff intensive,and profits have been slower than elderly care to return to pre-COVID levels.However,there are positive signs of potential EBITDA growth in H2 2025 as operators report lower reliance on agency staff,which is driving staff cost improvements.Investment activity slowed in 2024 as a result

323、of these operational challenges.Volumesare expected to start to recover in 2025 as the wider economy improves and operational performance strengthens.The demand fundamentals of the sector remain overwhelmingly positive for investors,and sustained investment in the sector by the Government will conti

324、nue to be a key part of social care commitments going forward.Improved asset quality across the supported living will help this grow as an alternative to 24/7 specialist residential care.Reflecting broader operational real estate market trends,we anticipate a continuation of new capital sources usin

325、g newly-evolving,shorter-term commercial ground rent structures.We expect to see this structure applied across the specialist care sector,especially for properties providing learning disability services.In line with broader net lease healthcare market activity,investment management platforms are cre

326、ating competitive tensions for longstanding investors in the specialist supported living sector.For example,Atrato Partners have recently taken over the mandate to manage Triple Point REIT with the opportunity to grow share price and restore confidence in the sector.INVESTOR DEMAND DRIVEN BY SUSTAIN

327、ED GOVERNMENT INVESTMENT INTO SPECIALIST CARE SERVICESLeisure,Food&Beverage66CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKThe Health&Fitness sector will continue to experience strong growth,particularly in the premium or budget areas rather than the mid-market.

328、04With the exception of cinemas,urban leisure has been trading well and leading the recovery.However,the low box office and operator distress in the cinema sector has suppressed investor demand.Resolutions to these issues and improved box office performance are key to regaining investor confidence.0

329、3Trading across the pubs sector has stabilised following years of disruption.This has created an improved environment for operators and investors,who can now act with greater certainty in 2025 including refinancing,sales and acquisitions.We anticipate an increasing number of sales and refinancings,a

330、s well as further administrations or processes to come.02Pubs will continue to face a challenging cost environment and the ability to continue to take price without losing too much volume will be critical.Many of the private equity owners are coming to the end of their investment cycle and so we exp

331、ect increased transactional activity in the coming year.01Key takeaways66CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UK67CBRE RESEARCH 2024 CBRE,INC.Intelligent InvestmentReal Estate Market Outlook 2025|UKPUBS STILL OPERATING IN A CHALLENGING ENVIRONMENTFaced wi

332、th higher prices,consumers are increasingly favouring special occasion rather than regular visits and looking for special offers and deals.As a result,operators have up until now been able to match inflation with price rises,but this is becoming morechallenging.There has been more corporate activity

333、 in 2024 compared with 2023,due to owners wanting to crystalise lifetime earnings,and the end of an investment cycle with willing buyers.Notable deals include Wear Inns being bought by Punch out of Administration;Lovely Pubs bought by Fullers as founders lookedto crystalise created value,and Amber Taverns bought by Epiris as the previous private-equity owner came to the end of its investment cycle