RICS Survey Calls the Bottom of the UK Commercial Real Estate Market as Yields Harden Across Sectors
Patrick Scanlon, Senior Director of Market Analytics at CoStar, assesses whether improving sentiment in the RICS UK Commercial Property Monitor points to an early recovery after several difficult years of high inflation, rising interest rates and weak growth.
In the Q4 2024 RICS survey, more than half of respondents said the UK market had either hit the bottom of the cycle or entered the early stages of an upswing. While there is broad confidence that investment pricing will not worsen, there is less agreement on what will trigger growth or when.
CoStar's own data suggests the upswing may already have begun. Capital values were rising at the end of 2024, office and industrial yields have started to fall from their highest levels since the global financial crisis, and retail yields have been falling for more than a year. Although the gap between property yields and ten-year gilt yields is among the narrowest this century, falling yields indicate returning investor confidence.
Survey respondents were more upbeat about industrial property than offices or retail, where enquiries fell and capital value expectations were negative. Scanlon notes that enquiries closely track investment volumes, which may point to slower turnover in early 2025.
The gap between buyers' and sellers' price expectations, a major brake on the market, appears to be closing. CoStar analysis of around 250 deals shows the average discount to asking price narrowing from about 15% in the first half of 2023 to 7% in the second half of 2024.
CoStar forecasts further yield compression through 2025, with a more mixed outlook for capital growth. Industrial vacancies are thought to be near their peak, supporting rental growth, but office vacancies may not peak until mid-2026, leading to slightly negative rental growth and short-term pressure on values.
Originally published on The Landsite (11 April 2025)
