Publication

UK Cross Sector Outlook 2025: Comparative returns

Swings and roundabouts for UK land and property


Last year we commented that we were confident that 2024 and 2025 will herald the bottom of the latest real estate cycle, and little has changed over the last twelve months to affect this view.

The 40-year high of inflation has passed, and most forecasters are predicting around 100 basis points of base rate cuts in both 2024 and 2025. Both of these are good news for land and property users and owners, and should herald the beginning of a return to more normal levels of transactional activity in many markets. However, the new UK government has stuck its policy flag in the ground with its first Budget, and while higher taxes to support public spending was never going to be a surprise, the details of this are enough to cool some of our forward views down a little.

The rise in employers’ National Insurance payments and the minimum wage leaves employers large and small having to decide whether to raise prices or to soften spending plans. This will impact some elements of the land and property market harder than others, and we expect that retail, leisure and labour-intensive agricultural businesses will feel the impact most keenly. In the residential property market, we expect that budgetary changes including the treatment of ‘non-doms’ will impact the prime central London market. This, to a degree, is the reason why our five-year forecast for London residential is so much weaker than our forecast for London offices.

It has been a while since offices of any sort were in the top tier of our comparative returns table, and this positivity is being driven by the restrained supply of prime product and the expectation of yield hardening to come. While the demise of the office is no longer a widely held view, we do not expect the agile working debate to disappear totally this year.

Outlook

Overall, our outlook for 2025 and beyond is more positive than it was twelve months ago, with the average total return forecast rising from 6.8% per annum to 7.4% per annum. Part of this will come from a recovery in capital value growth, but as ever the bulk of performance for many parts of the land and property sector will come from income.