Commercial real estate in the UK is expected to see an annualized total return of 7.5 percent between 2024 and 2028. During that period, capital values are forecast to grow faster than rents. Within the sector, industrial and logistics real estate stands out as the commercial property type with the highest total returns.

Between 2024 and 2028, industrial real estate is expected to see the highest annualized return on investment among different types of commercial properties in the UK. Total returns look at the expected rate of return on a real estate investment. Industrial properties are not only forecast to see the highest commercial real estate rental growth, but also the highest capital value growth by 2028.

Rental rates for London city office real estate are forecast to see an annualized growth of 1.8 percent in the period between 2024 and 2028, according to a May 2024 forecast. Rents are expected to grow the fastest in 2026, at 1.8 percent. Over the five-year period, London city office real estate was forecast to generate an annualized total return of six percent. That was lower than the average return on investment for all commercial property types in the UK.

The prime yields in the UK expanded across most property types in 2024, compared to the previous two years. Yields were the lowest in the London West End offices market at four percent. In contrast, shopping center yields stood at eight percent. Yield is an indicator for the expected return of a property investment and is calculated as the ratio of rental income and the property value. Several factors can drive yields - increased demand could raise property values, causing lower yields, while a fall in demand could create the opposite effect. Which is the largest commercial real estate sector in the UK? Office real estate has traditionally accounted for the lion’s share of the commercial property investment market, but since the start of the COVID-19 pandemic, investors’ interest has shifted towards industrial real estate. With the e-commerce sector growing and supply chain management becoming more important than ever, so has the industrial and logistic sector. This increase in importance is also reflected in the occupiers market, with the annual take-up exceeding the ten-year average for three years in a row. How is the commercial property market expected to develop in the coming years? The industrial and logistic property market is forecast to outperform retail and offices in terms of capital value growth in the period between 2024 and 2028. According to the same forecast, rental growth is expected to turn positive for all property types in 2024, except for shopping centers.

Rental rates for shopping centers in the United Kingdom are forecast to see an annualized growth of 0.7 percent in the period between 2024 and 2028, according to a May 2024 forecast. Rents are expected to grow the fastest in 2026, at 1 percent. Over the five-year period, shopping centers were forecast to generate an annualized total return of 7.2 percent. That was slightly lower than the average return on investment for all commercial property types in the UK.

The average return for prime retail real estate in Europe and the UK is forecast to slow in 2025. In 2024, the average return in the UK was estimated at 11.6 percent, and in 2025, it was expected to decline to 8.4 percent. Overall, the investment and development prospects of high street retail real estate have improved since 2021.

London is the most expensive city for office real estate in Europe. In 2023, the per square foot cost of office space in London was higher than in any other European city. In West End, a Grade A office cost about 90 British pounds per square foot in 2023. Prime offices were even more expensive, at 135 British pounds per square meter. Office yields Prime yields in Central London fluctuate depending on the district, but West End areas tend to have lower yields compared to other areas, such as Stratford or Canary Wharf. The prime office yield in Mayfair/St. James' in 2023 was the lowest among the major London office submarkets. In real estate, yields measure the potential return of a rental property and are calculated as the ratio of the property's rental income to the investment cost. Typically, prime office yields in London are lower than the rest of the UK, which is mostly due to the highly competitive market and high investment costs. Vacancy rates Despite the high office rental costs in England’s capital city, vacancy rates in many of London's main office markets were below seven percent in 2023. This is good news for the office sector, as during the coronavirus (COVID-19) pandemic, the share of vacant office space across all Central London districts spiked dramatically. Compared to other European cities, London was in the middle of the ranking, alongside Frankfurt and Lisbon.

Rental rates for office real estate in the United Kingdom are forecast to see an annualized growth of 1.8 percent in the period between 2024 and 2028, according to a May 2024 forecast. Rents are expected to grow the fastest in 2026, at 1.8 percent. Over the five-year period, office real estate was forecast to generate an annualized total return of 5.8 percent. That was the lowest return on investment of all commercial property types in the UK.

Rental rates for standard retail in the United Kingdom are forecast to see an annualized growth of 1.4 percent in the period between 2024 and 2028, according to a May 2024 forecast. Rents are expected to grow the fastest in 2026, at 1.5 percent. Over the five-year period, standard retail was forecast to generate an annualized total return of 6.5 percent. That was lower than the average return on investment for all commercial property types in the UK.

Across the major European industrial and logistics real estate markets, London had the highest rental rate in 2024. One square meter in a large, prime warehouse in London cost about 323 euros annually in the fourth quarter of the year. That figure reflects the rental cost after any rent-free periods or incentives, excluding taxes and charges, referred to as headline rent. Other markets with high rental rates were Helsinki and Oslo. What are the most important logistics hubs in Europe? London’s domestic and international connectivity, thriving business ecosystem, and access to a large consumer base make it one of the most important logistics hubs in Europe. Nevertheless, Birmingham achieved the highest take-up among the major European markets for three years in a row. Birmingham is part of the UK’s golden logistics triangle – an area between Birmingham, Northamptonshire, and Yorkshire that, due to its central location, is within a four-hour drive from 90 percent of the British population. Unsurprisingly, Europe’s three largest economies (the UK, Germany, and France) had the most active logistics investment markets. Combined, the three countries accounted for more than half of the total investment value in the sector. How profitable is warehouse investment in Europe? One of the key metrics for measuring the profitability of an investment is yield, or the rental income generated by the property as a percentage of its price. In Europe, yields for prime properties reached up to eight percent, but some markets, such as France and Germany, experienced much lower yields. Though low yields can be interpreted as low profitability, they are usually a sign of strong market fundamentals and sentiment. In conditions of economic growth and steady occupier demand, investors can expect rental and capital growth and are more willing to accept lower yields. On the other hand, when the macroeconomic conditions deteriorate, economic growth slows down, and borrowing costs increase, investors address the higher risk through higher yields.

Snapshot img

Europe Commercial Real Estate Market Size 2025-2029

The Europe commercial real estate market size is forecast to increase by USD 91.4 billion at a CAGR of 5.7% between 2024 and 2029.

The European commercial real estate market is experiencing significant growth, with increasing private investment flowing into the region. This trend is driven by a number of factors, including the economic stability of European countries, attractive yields compared to other global markets, and the continued demand for urban space. However, this growth is not without challenges. 
One major concern is the rising interest rates, which have the potential to increase borrowing costs for investors and potentially dampen demand. Despite this, opportunities abound for companies seeking to capitalize on the market's dynamics. For instance, there is a growing demand for sustainable real estate, as well as a shift towards alternative asset classes such as student housing, healthcare real estate, and hospitality real estate.
To navigate this complex landscape effectively, companies must stay informed of the latest trends and challenges, and be prepared to adapt their strategies accordingly. Overall, the European commercial real estate market offers significant opportunities for growth, but also requires a strategic and agile approach to succeed.

What will be the Size of the Europe Commercial Real Estate Market during the forecast period?

Request Free Sample

The European commercial real estate market encompasses a diverse landscape of travel-restriction resilient sectors, including warehouses and fulfillment centers catering to the in e-commerce spending. Urbanization continues to drive demand for adaptable office spaces in metro cities, with a growing emphasis on sustainable designs and technology-driven solutions. The commercial sector is undergoing digitalization, with brokers and managers leveraging media portals to streamline transactions and enhance client experiences. The hybrid work model is shaping office occupancy trends, as middle-class consumers and the working-age population adapt to flexible work arrangements. Foreign investments remain strong, particularly in sectors like logistics and data centers.
Vacancy rates, rental rates, absorption rates, and property valuations are closely monitored indicators of market health. Architects and engineers are tasked with designing spaces that accommodate the evolving needs of businesses, from flexible layouts to energy efficiency. Overall, the European commercial real estate market exhibits activity and growth, with trends leaning towards digitalization, sustainability, and adaptability.

How is this market segmented?

The market research report provides comprehensive data (region-wise segment analysis), with forecasts and estimates in 'USD billion' for the period 2025-2029, as well as historical data from 2019-2023 for the following segments.

Type

  Rental
  Lease
  Sales


End-user

  Offices
  Retail
  Leisure
  Others


Geography

  Europe

    France
    Germany
    Italy
    UK

By Type Insights

The rental segment is estimated to witness significant growth during the forecast period. The European commercial real estate market is experiencing a significant shift, with the rental segment leading the way in 2024. Office rental growth in Europe accelerated to 1.8% quarter-on-quarter in Q3 2022, resulting in an annual increase of over 5%. Notably, the UK, Benelux markets, and peripheral Europe experienced the highest growth rates. However, investment markets are showing caution, as buyers hesitate to pay earlier price levels due to economic uncertainties, inflation, and finance rates. Urbanization and social distancing measures continue to impact commercial real estate, driving the need for adaptable office spaces and sustainable designs. The commercial sector is also undergoing digitalization, with technology-driven solutions, smart building technology, and data analytics gaining popularity.

Additionally, e-commerce spending and changing customer behavior are leading to increased demand for warehouses, fulfillment centers, and logistics facilities. The Middle-class consumers and the working-age population's digitization of work further fuel the demand for managed office facilities, collaborative spaces, and digital infrastructure. Key trends include hybrid work patterns, energy-efficient features, green building certifications, and sustainable construction methods.

Get a glance at the market report of share of various segments Request Free Sample

The rental segment was valued at USD billion in 2019 and showed a gradual increase during the forecast period.

Market Dynamics

The Europe commercial real estate market is diverse, encompassing a wide range of property types, from office space leasing to industrial warehouse sites. Retail property deals and urban retail units remain a signifi

Rental rates for retail warehouses in the United Kingdom are forecast to see an annualized growth of 1.6 percent in the period between 2024 and 2028, according to a May 2024 forecast. Rents are expected to grow the fastest in 2026, at 1.8 percent. Over the five-year period, retail warehouses were forecast to generate an annualized total return of 8.3 percent. That was higher than the average return on investment for all commercial property types in the UK.

Abstract copyright UK Data Service and data collection copyright owner.The Family Resources Survey (FRS) has been running continuously since 1992 to meet the information needs of the Department for Work and Pensions (DWP). It is almost wholly funded by DWP. The FRS collects information from a large, and representative sample of private households in the United Kingdom (prior to 2002, it covered Great Britain only). The interview year runs from April to March.The focus of the survey is on income, and how much comes from the many possible sources (such as employee earnings, self-employed earnings or profits from businesses, and dividends; individual pensions; state benefits, including Universal Credit and the State Pension; and other sources such as savings and investments). Specific items of expenditure, such as rent or mortgage, Council Tax and water bills, are also covered.Many other topics are covered and the dataset has a very wide range of personal characteristics, at the adult or child, family and then household levels. These include education, caring, childcare and disability. The dataset also captures material deprivation, household food security and (new for 2021/22) household food bank usage. The FRS is a national statistic whose results are published on the gov.uk website. It is also possible to create your own tables from FRS data, using DWP’s Stat Xplore tool. Further information can be found on the gov.uk Family Resources Survey webpage. Safe Room Access FRS data In addition to the standard End User Licence (EUL) version, Safe Room access datasets, containing unrounded data and additional variables, are also available for FRS from 2005/06 onwards - see SN 7196, where the extra contents are listed. The Safe Room version also includes secure access versions of the Households Below Average Income (HBAI) and Pensioners' Incomes (PI) datasets. The Safe Room access data are currently only available to UK HE/FE applicants and for access at the UK Data Archive's Safe Room at the University of Essex, Colchester. Prospective users of the Safe Room access version of the FRS/HBAI/PI will need to fulfil additional requirements beyond those associated with the EUL datasets. Full details of the application requirements are available from Guidance on applying for the Family Resources Survey: Secure Access.FRS, HBAI and PIThe FRS underpins the related Households Below Average Income (HBAI) dataset, which focuses on poverty in the UK, and the related Pensioners' Incomes (PI) dataset. The EUL versions of HBAI and PI are held under SNs 5828 and 8503 respectively. The secure access versions are held within the Safe Room FRS study under SN 7196 (see above). The FRS aims to: support the monitoring of the social security programme; support the costing and modelling of changes to national insurance contributions and social security benefits; provide better information for the forecasting of benefit expenditure. From April 2002, the FRS was extended to include Northern Ireland. Detailed information regarding anonymisation within the FRS can be found in the anonymised variables volume of the dataset documentation. For the second edition (October 2014) the data have been re-grossed following revision of the FRS grossing methodology to take account of the 2011 Census mid-year population estimates. New variable GROSS4 has been added to the dataset. Main Topics: Household characteristics (composition, tenure type); tenure and housing costs including Council Tax, mortgages, insurance, water and sewage rates; school milk and meals; educational grants and loans; children in education; informal care (given and received); childcare; occupation and employment; health restrictions on work; children's health; wage details; self-employed earnings; personal and occupational pension schemes; income and benefit receipt; income from pensions and trusts, royalties and allowances, maintenance and other sources; income tax payments and refunds; National Insurance contributions; earnings from odd jobs; children's earnings; interest and dividends; investments; National Savings products; assets. Standard Measures Standard Occupational Classification Multi-stage stratified random sample Face-to-face interview Computer Assisted Personal Interviewing 2007 2008 ABSENTEEISM ACADEMIC ACHIEVEMENT ADMINISTRATIVE AREAS AGE APARTMENTS APPLICATION FOR EMP... APPOINTMENT TO JOB ATTITUDES BANK ACCOUNTS BEDROOMS BONDS BUILDING SOCIETY AC... BUSES BUSINESS RECORDS CARE OF DEPENDANTS CARE OF THE DISABLED CARE OF THE ELDERLY CHARITABLE ORGANIZA... CHILD BENEFITS CHILD CARE CHILD DAY CARE CHILD MINDERS CHILD MINDING CHILD SUPPORT PAYMENTS CHILD WORKERS CHILDREN CHRONIC ILLNESS CIVIL PARTNERSHIPS COHABITATION COLOUR TELEVISION R... COMMERCIAL BUILDINGS COMMUTING CONCESSIONARY TELEV... CONSUMPTION COST OF LIVING COSTS COUNCIL TAX CREDIT UNIONS Consumption and con... DAY NURSERIES DEBILITATIVE ILLNESS DEBTS DISABILITIES DISABILITY DISCRIMI... DISABLED CHILDREN DISABLED PERSONS DOMESTIC RESPONSIBI... ECONOMIC ACTIVITY ECONOMIC VALUE EDUCATION EDUCATIONAL BACKGROUND EDUCATIONAL FEES EDUCATIONAL GRANTS EDUCATIONAL INSTITU... EDUCATIONAL VOUCHERS ELDERLY EMPLOYEES EMPLOYMENT EMPLOYMENT HISTORY EMPLOYMENT PROGRAMMES ENDOWMENT ASSURANCE ETHNIC GROUPS EXPENDITURE EXTRACURRICULAR ACT... FAMILIES FAMILY MEMBERS FINANCIAL DIFFICULTIES FINANCIAL INSTITUTIONS FINANCIAL RESOURCES FINANCIAL SUPPORT FOOD FREE SCHOOL MEALS FRIENDS FRINGE BENEFITS FULL TIME EMPLOYMENT FURNISHED ACCOMMODA... FURTHER EDUCATION Family life and mar... GENDER GIFTS GRANDPARENTS GRANTS HEADS OF HOUSEHOLD HEALTH HEALTH SERVICES HEARING IMPAIRED PE... HEARING IMPAIRMENTS HIGHER EDUCATION HOLIDAY LEAVE HOME BASED WORK HOME OWNERSHIP HOME SHARING HOURS OF WORK HOUSEHOLD BUDGETS HOUSEHOLD HEAD S OC... HOUSEHOLD INCOME HOUSEHOLDS HOUSING HOUSING FACILITIES HOUSING FINANCE HOUSING TENURE INCOME INCOME TAX INDUSTRIES INSURANCE INSURANCE PREMIUMS INTEREST FINANCE INVESTMENT INVESTMENT RETURN Income JOB DESCRIPTION JOB HUNTING JOB SEEKER S ALLOWANCE LANDLORDS LEAVE LOANS LODGERS LOW PAY MANAGERS MARITAL STATUS MARRIED WOMEN MARRIED WOMEN WORKERS MATERNITY LEAVE MATERNITY PAY MEDICAL PRESCRIPTIONS MORTGAGE PROTECTION... MORTGAGES MOTORCYCLES NEIGHBOURS Northern Ireland OCCUPATIONAL PENSIONS OCCUPATIONAL QUALIF... OCCUPATIONS ONE PARENT FAMILIES ONLINE BANKING OVERTIME PARENTS PART TIME COURSES PART TIME EMPLOYMENT PARTNERSHIPS BUSINESS PASSENGERS PATERNITY LEAVE PENSION CONTRIBUTIONS PENSIONS PHYSICALLY DISABLED... PHYSICIANS POVERTY PRIVATE EDUCATION PRIVATE PERSONAL PE... PRIVATE SCHOOLS PROFITS QUALIFICATIONS RATES REBATES REDUNDANCY REDUNDANCY PAY REMOTE BANKING RENTED ACCOMMODATION RENTS RESIDENTIAL MOBILITY RETIREMENT ROOM SHARING ROOMS ROYALTIES SAVINGS SAVINGS ACCOUNTS AN... SCHOLARSHIPS SCHOOL MILK PROVISION SCHOOLCHILDREN SCHOOLS SEASONAL EMPLOYMENT SECONDARY EDUCATION SECONDARY SCHOOLS SELF EMPLOYED SEWAGE DISPOSAL AND... SHARES SHIFT WORK SICK LEAVE SICK PAY SICK PERSONS SOCIAL CLASS SOCIAL HOUSING SOCIAL SECURITY SOCIAL SECURITY BEN... SOCIAL SECURITY CON... SOCIAL SERVICES SOCIAL SUPPORT SOCIO ECONOMIC INDI... SOCIO ECONOMIC STATUS SPECIAL EDUCATION SPOUSES STATE EDUCATION STATE HEALTH SERVICES STATE RETIREMENT PE... STUDENT HOUSING STUDENT LOANS STUDENTS STUDY SUBSIDIARY EMPLOYMENT SUPERVISORS SUPERVISORY STATUS Social stratificati... TAXATION TELEPHONES TELEVISION LICENCES TELEVISION RECEIVERS TEMPORARY EMPLOYMENT TENANCY AGREEMENTS TENANTS HOME PURCHA... TERMINATION OF SERVICE TIED HOUSING TIME TOP MANAGEMENT TRAINING UNEARNED INCOME UNEMPLOYED UNEMPLOYMENT BENEFITS UNFURNISHED ACCOMMO... UNWAGED WORKERS VISION IMPAIRMENTS VISUALLY IMPAIRED P... VOCATIONAL EDUCATIO... VOLUNTARY WORK WAGES WATER RATES WIDOWED WORKING MOTHERS WORKING WOMEN property and invest...

Rental rates for London West End office real estate are forecast to see an annualized growth of 2.7 percent in the period between 2024 and 2028, according to a May 2024 forecast. Rents are expected to grow the fastest in 2024, at 2.9 percent. Over the five-year period, London West End office real estate was forecast to generate an annualized total return of 6.1 percent. That was lower than the average return on investment for all commercial property types in the UK.

Industrial multi-lets and industrial distribution properties had the lowest yields in the industrial real estate sector, amounting to 5.25 percent in February 2024. Conversely, yields were the highest for retail warehousing (restricted), at 6.25. Yield is an indicator for the expected return of a property investment and is calculated as the ratio of rental income and the property value. Several factors can drive yields - increased demand could raise property values, causing lower yields, while a fall in demand could create the opposite effect. Overall, yields expanded across all commercial property types in 2023.

The investment yields of warehouse and industrial space in the UK continued to rise in 2024. As of June, yields were the highest for good secondary estates, at 7.25 percent. Conversely, prime distribution and warehousing properties with a lease term of 20 years and a higher open market value had the lowest yield, at five percent.

Rental rates for industrial real estate in the United Kingdom are forecast to see an annualized growth of 3.2 percent in the period between 2024 and 2028, according to a May 2024 forecast. Rents are expected to grow the fastest in 2024, at 3.8 percent. Over the five-year period, industrial real estate was forecast to generate an annualized total return of 8.5 percent - the highest return on investment of all commercial property types in the UK.

The United Kingdom emerged as the market with the highest forecast annual total return between 2024 and 2029. According to a September 2024 forecast, commercial real estate in the UK is expected to yield a total return of 8.9 percent in the next year. Nevertheless, during the five-year period, the total return is expected to be slightly lower, at 7.5 percent annually. According to another forecast from May 2024, industrial facilities and retail warehouses emerged as the commercial property types with the highest projected returns.

Industrial real estate is forecast to experience the highest annualized capital growth in the commercial real estate sector in the UK between 2024 and 2028. On average, capital values for commercial property are expected to increase by 2.5 percent per year, while for industrial and logistics real estate, that figure amounted to four percent. Additionally, industrial is forecast to experience the highest return on investment in the commercial property sector.

Prime yields for high street retail properties in the UK have increased since 2019. As of June 2024, yields were the highest for good secondary properties in markets such as Truro, Leamington Spa, Colchester, and the lowest on Bond Street in London. High street shops on Oxford Street in London had a prime yield of 4.5 percent.