The investment case for UK commercial real estate could improve after a cautious first half of 2025, TIME Investments has predicted.
The market has seen subdued investment activity in the first half of 2025, with data from CBRE showing H1 2025 investment volumes 18% down on H1 2024.
This is also reflected in the half-year figures, with Savills reporting overall volumes 7% below the long-term H1 average.
However, Roger Skeldon, head of real estate and co-fund manager of TIME:Property Long Income & Growth, said: “Despite the challenges, there is an expectation that the market will improve in the second half of 2025 with that continuing into 2026.
“This optimism is based on anticipated clarity in economic conditions and an improving macroeconomic environment.
“Further interest rate reductions will be a key driver for increased property investment, as lower rates will make other sectors and assets more attractive for investment and should lead to an increase in overall transaction volumes.”
He added: “As the investment case for commercial property strengthens, institutional capital and REITs, which are currently below their typical share of investment volumes, are expected to become more active. Additionally, this stronger investment rationale is expected to attract further offshore capital, which has already played a major role in UK commercial property investments this year.
“While the first half of 2025 has been a period of adjustment and caution for commercial property investment, the foundations are being laid for a more robust second half. Improved credit conditions and the prospect of further interest rate cuts are expected to boost confidence, paving the way for a more active and buoyant market as we move into 2026.”
While investment levels vary across the market, the office and industrial sectors are largely propping up the 2025 numbers, thanks to institutional buyers in prime London and major regional cities, who are comfortable with the sector’s risk profile and the larger lot sizes available.
Office yields have moved significantly over the last few years, with the ability to acquire Grade A property in prime regional areas now at yields above 7% with a good covenant.
Many investors remain cautious and have essentially “sat on their hands,” particularly in sectors beyond office and industrial. TIME Investments blamed this on sustained global economic uncertainty, including tariffs, global conflict, inflation uncertainty, interest rates, and gilts.