London real estate in 2025: Will the market finally thrive after a stagnant year?

2024: The year that almost was

One of the best quotes I have read to sum up 2024 is ‘The year that wasn't’, or, more fittingly it should read, ‘The year that almost was’.  

Despite the direction of travel for the key financial metrics finally pointing in the right direction – falling interest rates, declining inflation, and stabilising asset values, the lack of activity was disappointing and the reasons not to transact numerous. “Wait, we have a UK election.” “Wait, we have a Budget.” “Wait, the Budget was terrible and now there is a US election.”

These pauses stretched across the year and UK GDP growth slowed from 0.7% in Q1 2024, to 0% by year end, partly due to the fiscal tightening introduced in the Budget.

Still, the London commercial property market in 2024 showed signs of resilience. Prime office space saw rental growth due to a tight supply of grade A offices, and retail seemed to finally reach a baseline where physical stores and online retail could coexist in balance

2025: Will stability fuel a real estate comeback?

As we begin 2025, the outlook is cautiously optimistic. A more stable economic environment; expected interest rate cuts (Morgan Stanley forecasts five this year); and a growing focus on sustainability could encourage renewed investment across various sectors of the market.

That assessment may be walking on the sunny side of the street, but at the start of the year, we retain the optimism that the industry will ‘thrive in ‘25’ rather than just survive.  

At Freeths, the London real estate team has already had an active start, with notable transactions including the purchase of York House, 23 Kingsway, and our first loan acting for Alpha Bank London Limited. This early activity suggests a more dynamic year ahead.

The UK remains an attractive investment destination, particularly in the city, where rents grew by 10% in 2024 breaking records at landmark buildings like 22 Bishopsgate. ESG (Environmental, Social and Governance) investment could also gain momentum. With the new US President withdrawing from the Paris Agreement and signalling hostility towards sustainability, US ESG funds may pivot towards the UK.

Meanwhile, UK developers continue their longer-term sustainable development programmes, with projects like Land Securities’ Timber Square – a net zero carbon scheme and one of the UK’s largest timber structures.

The remote work debate: A shift back to the office?

Five years after the start of the pandemic, remote working remains one of Covid’s most enduring legacies. Two in five employees still work from home at least one day a week, according to the Office for National Statistics.  

However, there are signs that the tide is turning. Major employers like JPMorgan Chase are expected to call all employees back to the office full-time, while Lloyds is linking bonuses to in-office attendance for around 12,000 senior staff. The latest figures highlight the trend. Last month, office occupancy reached a post-Covid high of 60% of the pre-pandemic average, up from 24% during 2021.  

However, this is being challenged by some. WPP, the FTSE 100 advertising giant, is facing internal pushback after requiring staff to return to the office four days a week, and HM Land Registry employees have enacted a work-to-rule policy in response to the civil service’s three-day office mandate.

Looking ahead

The London real estate market begins 2025 with renewed optimism. If economic stability continues, interest rates decline, and investor confidence rebounds, this year could finally mark the long-awaited shift from ‘wait and see’ to ‘now is the time’!