Stay up to date with free updates

Simply register for Real Estate in Great Britain myFT Digest – delivered straight to your inbox.

The UK commercial property market is recovering faster than the rest of Europe from a two-year downturn caused by high interest rates.

According to market data, transaction volumes and property values ​​in the UK increased in the first half of 2024. In Germany and France, Europe’s largest markets after the UK, transaction numbers did not increase and prices rose only slightly during this period.

Industry executives and representatives said Britain had benefited from hopes of political stability following the general election, a better economic outlook, rising rents and a more moderate rise in prices between Brexit and the market peak in 2022.

“The UK has probably been the quickest to rebalance,” said Mark Ridley, CEO of Savills, a commercial transactions advisory firm. “There is uncertainty about how fast and how far the recovery will go.”

Commercial property values ​​across Europe have fallen by almost a quarter since their 2022 peak. However, prices rose by about 1 percent in the first half of the year, according to a Green Street index. The UK outperformed France and Germany, with gains of 1.4 percent.

In the UK, transaction volumes rose 7 percent, with €26 billion worth of real estate changing hands, according to MSCI, while volumes in continental Europe stagnated.

There are signs that the UK market will recover more quickly, despite the European Central Bank cutting interest rates in June, two months before the Bank of England.

“We see the market turning,” said Ben Sanderson, managing director of real estate at Aviva – one of the UK’s largest institutional property investors, which manages around £50 billion. “We have believed this story for some time.”

The beginning of an upswing obscures the fact that some types of real estate are in greater demand than others.

According to Green Street’s European index, prices for warehouses, residential properties and hotels have already improved slightly over the past year. Other sectors, particularly office buildings, are still experiencing sharp declines in value.

The first half of 2024 was the worst for the UK office market since MSCI began tracking in 2001, with transactions valued at just €4.2 billion. Growth instead came from sales of apartment buildings, student accommodation and hotels.

Sanderson warned that he expected a K-shaped recovery, with some property values ​​continuing to decline while others recovered.

Investors are very selective in their purchasing decisions. According to MSCI, the traditional main real estate sectors – office, retail and industrial – across Europe continue to see a decline in year-on-year transaction completions.

According to MSCI, the largest real estate buyers in Europe in the first half of the year included the large US private equity groups Blackstone, Ares and KKR.

Blackstone said it had invested about $3 billion in European real estate, not including debt investments, with most of it going to the UK, where it signed major new residential deals with Vistry and bought a hotel chain, logistics warehouses and a luxury shopping complex on New Bond Street.

James Seppala, head of Blackstone’s European real estate business, said the company is focusing on “logistics, residential, leisure and data centers” because these sectors “benefit from positive demand from tenants and investors.”

Dealmaking in the UK has been boosted by some large transactions, including LondonMetric’s acquisition of LXI. Other listed landlords, including Segro, Unite Students and GPE, have raised equity this year to fund new investment as they look to capitalise on a continued recovery.

Property valuations in the UK are more closely linked to current market conditions than elsewhere in Europe, which generally contributes to a faster revaluation of the market.