Real estate plays a vital role in the United Kingdom’s (UK) economy. In 2022, the real estate sector, comprising services such as property development, investment and advisory, brokerage, leasing, appraisal, and management, among others, contributed gross value-added surpassing that of any other sector.
Recent data reveals that the industry employed 545,000 people and generated turnover of over 65 billion British pounds in 2022. The pandemic has accelerated various trends in the market: As a large share of the office workforce switched to working from home, businesses have had to redefine their office concepts and adapt them to hybrid work. In 2023, office space vacancy across most UK city centers remained elevated from the period before the pandemic. Prime rents, on the other hand, increased in all major markets. In the residential market, the rising mortgage rates driven by high inflation have led to a decline in mortgage affordability.
What’s the size of the commercial property market in the UK?
After Germany, the UK was the second-largest commercial real estate market in Europe in 2022, valued at over 1.7 trillion U.S. dollars. Commercial real estate encompasses various property types focused on financial returns and rental purposes, including industrial, office, retail, leisure, medical, hotel, and, in some cases, even the privately rented residential subsector. The investment value in commercial real estate in the UK reached close to 65 billion euros in 2022, higher than in any other European country.
The UK, with its vibrant economy, is a sought-after destination for cross-border investments. In 2022, foreign investment in the country exceeded 35 billion U.S. dollars, with offices constituting the largest share. However, the UK public real estate market experienced a significant decline in 2022. The market capitalization of listed companies decreased by approximately 47 billion U.S. dollars between the fourth quarter of 2021 and the fourth quarter of 2022. Several factors contributed to this contraction, including the general economic slowdown, rising interest rates, inflation, and geopolitical tensions arising from the Ukraine-Russia war. Despite the challenges faced in 2023, the commercial real estate market is projected to witness moderate positive growth in capital values until 2027.
How has the residential property market developed in recent years?
Since the outbreak of the coronavirus, there has been a significant surge in demand in the residential property market, leading to a sharp increase in property prices. The limited availability of affordable housing has intensified competition among homebuyers to unprecedented levels. In 2022, the average house price in different regions of the country ranged between 200,000 British pounds and 550,000 British pounds. Homeownership is prevalent in the UK, with a majority of households relying on mortgages to finance their homes.
When comparing homeownership rates across various European countries, the UK ranks closely alongside the Netherlands, Sweden, and Denmark, with a rate of 65 percent.