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Savills expects strong growth to resume across the commercial real estate sector this year after years of stagnation in the wake of the pandemic.
The property group told shareholders on Thursday that while “challenging” macroeconomic conditions are expected to persist for some time, “most markets are recovering.”
Savills said: “We expect refinancing-driven activity, the sustainability agenda and the trend towards businesses requiring greater office attendance for staff to continue to be positive for transaction volumes.”
It added that its performance in 2024 was bolstered by its market share in commercial transactions.
So what’s in store for commercial property this year?
A growing number of companies, including JP Morgan, Lloyds Banking Group and Meta, are urging or forcing their workforce to be in the office more frequently or permanently.
However, the level of future demand for office space remains uncertain and the commercial real estate industry has been through a torrid time in recent years, as have investors with money invested in it.
Share prices in the sector fell by around a third in 2022, but have since regained some ground.
During the pandemic and immediately after, many wrote off commercial real estate. To what extent has this panorama changed?
Student accommodation: An expert told This is Money that student accommodation rentals are increasing and could prove fruitful
This is Money spoke to three experts to get their take on how commercial real estate is likely to develop this year.
Work-from-home crackdown looks optimistic
Speaking to This is Money, Marcus Phayre-Mudge, fund manager at TR Property Investment Trust, said: “The recovery in the commercial property sector remains bumpy, but demand for high-quality buildings is outstripping supply across all sectors. .
‘This applies even to the much-maligned CBD offices, where vacancy rates for prime West End spaces are at record lows of less than 3 per cent.
“This supply shortage reflects the lack of post-pandemic development and a renewed recognition of the value of in-person collaboration for businesses.”
He added: ‘It has also been reported today that Citigroup is facing a staggering £1bn bill to modernize its aging Canary Wharf skyscraper.

Experts: Marcus Phayre-Mudge is a fund manager at TR Property Investment Trust
‘Ironically, this highlights the advantage for owners of modern office buildings that attract employees, are located in desirable postcodes and already meet higher environmental standards.
‘Listed real estate companies continue to face challenges. The new government’s budget has not been well received in the markets, and borrowing costs appear poised to decline rather than fall.
But the pendulum of sentiment has probably swung too far toward misery.
“The companies we invest in own in-demand properties and have manageable debt, making them well equipped to withstand higher interest rates and for longer.”
Risk of stranded assets?
Matthew Norris, manager of the VT Gravis UK Listed Property Fund, told This is Money: “The outlook for UK commercial property in 2025 is more positive than it has been for some time, and we have seen a marked increase in interest in the past. approximately three months by financial advisors and wealth managers looking to increase their allocation to the asset class.
Norris warned that “persistent inflation” and interest rates staying high for longer remain risks, but said “there are many positives that make commercial property attractive.”
He added: “The latest lag in UK economic growth and the unexpected slowdown in UK inflation to 25 per cent mean Bank of England interest rates are likely to be lower by the end of 2025. .
‘Rents are rising, especially in areas such as student housing, supply is limited, interest rates are falling (albeit at a slower rate) and investor confidence is improving.
‘And if you like commercial property, UK REITs are worth a look – they trade at multi-year discounts to net asset value. Add to that a 5 percent yield and a 5 percent dividend growth forecast, and the growth potential is significant.”
As for office space, Norris believes environmental credentials could influence the viability of commercial premises.
Norris told This is Money: “When it comes to offices I am actually very picky and I agree with Savills that a large number of premises are at risk of becoming brownfield assets.”
‘Buildings have a large carbon footprint and new offices can no longer be the energy-consuming giants of the past. The most desirable offices in the UK tend to be modern offices in London’s West End, owned and developed by companies such as Derwent London.
‘In the UK, the government has set the Minimum Energy Efficiency Standard, measured by an Energy Performance Certificate which sets out the energy efficiency of a property with a rating from A to E.
“The regulation requires all commercial buildings to have a minimum rating of B or higher by 2030.”
He added: “If regulations dictate that buildings must be more energy efficient, tenants want to be in buildings that are environmentally friendly and workers want to be in buildings that have a high level of amenities: places to store their bicycles , places to have a shower, etc. – this is good news for owners producing, developing and managing the next generation of green offices, with high EPC ratings.
“But those buildings that are rated low are at risk of becoming unlettable – it becomes too expensive to upgrade them to make them future-proof, and then they become unacceptable to tenants or illegal to rent.”
Interest rates remain key
Keith Bowman, equity analyst at Interactive Investor, said: “The outlook for the real estate sector remains difficult to predict.
‘Hopes for further cuts in global interest rates deteriorated in late 2024 due to strong economic activity, mainly in the United States, and persistent inflation. However, more recently, hopes have regained momentum amid declining inflation in both the US and the UK.
‘Overall, UK property stocks throughout 2024 returned the gains made in 2023.
‘More specifically, Savills today in its latest trading update, noted that most markets are recovering towards 2025. Leading property REITs Land Securities, in its first half results to the end of September, flagged stabilized property values and increase in rents.
“Dividend yields for many UK property companies remain attractive, and some investors are likely to feel they are being paid to wait for a potential recovery when it arrives.”
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