The commercial property market in the UK has endured a turbulent couple of years, with challenges such as rising interest rates, a reassessment of the role of office spaces, and the continued growth of e-commerce reshaping the landscape. There are signs of recovery in certain areas, although the pace and extent of recovery will vary significantly across different sectors.

1. What Has Happened in the Market
The UK commercial property market has been under considerable pressure since 2022, primarily driven by high interest rates, economic uncertainty, and significant shifts in how businesses and consumers use commercial real estate. The market saw substantial declines in property values, with a near 25% fall across Europe from their peak levels.

Several factors contributed to this downturn. Interest rates rose sharply, increasing borrowing costs and making commercial investments less attractive. This particularly affected sectors like office buildings, which had already been struggling with falling rents and vacancies, due to the shift towards remote working, leaving many secondary offices underutilised or empty. Additionally, economic uncertainty, coupled with Brexit and political instability, slowed the market further and UK Government gilt yields increased – with a subsequent and commensurate rise in commercial yields.

Despite this, however, the UK has shown more resilience than other major markets like Germany and France, posting a 1.4% price increase in the first half of 2024, compared to a European average of 1% (Green Street’s Commercial Property Price Index). Despite this, the market has a long way to recover to reach the level of pricing that was being achieved in early 2022.