Real Estate 360° | 2025
Economy and funding
Real estate set for growth in 2025?
A year ago, forward-looking sentiment was summarised as “cautious optimism”. This followed a difficult period marked by high interest rates, economic volatility and sustained global shocks. In 2023, property transactions had fallen by 40% and 53% of our survey respondents expected an increase in distressed assets. Optimism was born out of the belief that hitting the bottom was near and the only way was up. Fast forward, and we’re further along the track, ending 2024 on a stronger footing. This coming year is not without risk for real estate but the industry is charged with momentum. Our 200 surveyed real estate leaders are focused more on growth this year.
68% of the real estate leaders we spoke to are optimistic about the market in the next 12 months. This is a 13% increase from when we asked last year. Our survey respondents' optimism is not limited to just this year, as 76% expressed confidence in the market’s prospects over the next three years.
Compared to now, how do you feel about the UK real estate market's prospects over the next 12 months?
Very optimistic
Somewhat optimistic
Neutral
Somewhat pessimistic
Very pessimistic
Shift in investment barriers for real estate businesses
Economic recession and volatility remains the top investment barrier for the third year in a row, listed by half of the respondents. However, while still significant, these concerns have eased compared to last year.
Access to funding and interest rates are still considered barriers to investment. The interest rate cuts in 2024 however, mean that these concerns have dropped down 8% from last year. Additional tax restrictions and political instability have risen up the ranks to become more pressing concerns for our respondents. Tax restrictions were the second most popular concern. The autumn budget announced by the newly elected government left gaps in detail around policy commitments. That, combined with instability in the global economy, perhaps mean it is unsurprising that these concerns are so prominent.
Which of the following do you consider to be the biggest barriers to investment?
Economic recession/volatility
Political instability
Deteriorating market conditions
Additional tax restrictions
Funding/high interest rates
Legislative and regulatory changes
Business rates
Planning obstacles
Lack of supply
Brighter prospects ahead for funding access
There has been a positive shift in expectations around capital availability. Three-quarters of our respondents believe that funding will either remain the same or become more accessible this year, a 30% increase on the comparative figure two years ago. While the cost and structure of capital may remain challenging and vary by region and asset class, there is a growing consensus of an increased appetite for lending across the sector, which will stimulate more activity.
The supply-demand imbalance in the living sectors has attracted significant interest from private equity (PE), which narrowly tops the list of available sources of capital identified by respondents. PE houses have particularly targeted assets such as Build-to-Rent (BTR) and senior living.
was invested in PE across 2024 in real estate and construction
of the deals done in residential/living sectors
Source: PitchBook
The top three sources of available capital according to our survey respondents are PE, high-street banks and UK investors/family offices. Notably, UK investors and family offices have overtaken foreign investors compared to last year, possibly due to perceptions regarding tax changes in the UK.
Which sources of capital do you believe will be the most readily available for the real estate sector within the next 12 months?
Since the pandemic, real estate markets around the world have become more domesticated. With 64 countries holding elections last year, 2025 will be a crucial year to closely monitor policy outcomes that could influence overseas investment into UK real estate.
Which overseas regions do you expect to be the most active investors in UK real estate?
Hover over the pins to explore the data
The outlook from our economist
Economic growth clearly disappointed in the second half of last year and some downside risks, especially around tariffs and trade disruptions, are starting to materialise. But there are good reasons to expect the real estate sector will outperform the broader economy.
Interest rates are likely to continue to fall this year and will finish around 3.75%
First, households have significantly strengthened their balance sheets over the past few years, and household incomes have recovered over the last two years, putting households in a stronger financial position and boosting housing affordability.
Second, interest rates are likely to continue to fall this year; we anticipate they will finish the year around 3.75%, further supporting affordability. Overall, we expect the economy to grow a little faster this year than in 2024, driven by higher government spending and stronger consumer spending. However, there are clear risks from trade disruption and higher interest rates emanating from the United States, which would have a stagflationary effect on the UK.
