Boosting the Real Estate Sector and Navigating Economic Challenges in 2025

The unpredictable economic outlook at the start of 2025 has continued throughout the first half of the year. Following the spending cuts announced by the Chancellor in the Spring Statement, the evolving US tariff situation saw the steepest global financial markets rout since Covid, followed by an almost as swift rebound.

Another rate cut at the beginning of May was a boost for the real estate sector as the Bank of England looks to stave off any potential economic instability. This was welcomed by the industry and will hopefully act as a catalyst for improved investor sentiment and transaction volumes. However, with growing concerns that higher wages may cause a resurgence in inflation, the Bank of England may be forced to slow the speed at which they cut rates, meaning the recovery takes longer than many had hoped.

Despite this backdrop, our team has had a strong 2025 so far. Lending volumes in the first quarter were up on previous three quarters, and we are seeing a marked shift away from refinancing back to investment and development financing, as the fundamentals in our core sectors remain attractive, especially for some of the UK’s biggest listed landlords – many of whom have been bullish in tone across the logistics, office, retail and residential sectors as well as feedback from the team who attended the increasingly relevant UK REiiF conference in sunny Leeds, support this outlook.

The Living sector continues to benefit from being a focus of Labour policy since before last year’s election and the Spring Statement provided some further encouragement for the sector, with the Chancellor announcing a number of positive measures including a commitment to invest a further £2 billion in social and affordable housing in 2026-27 and the freeing up of more green belt land. This should support the Government’s ambitions to build 1.5 million homes over this parliament and provides developers with greater certainty in the short term and confidence to invest in their pipelines.

Recent events may also encourage more investment in the industrial & logistics sector as businesses review their onshoring requirements, while an anticipated surge in defence spending will increase demand for suitable space. Our conviction in the sector was demonstrated in February with the announcement of a £400 million joint venture with Kier on behalf of our REALIS equity strategy.

At the beginning of the year I said that it was hard to predict what 2025 would have in store. What we have seen is that, despite the challenging backdrop, the debt market has been remarkably resilient. Alongside the debt funds and insurers/pension funds who have continued to be active over the past few years, we have seen the clearing banks returning in force, with attention funnelled towards lending against best in class, or transitional assets. This increased competition has meant it is even more important for us to stay close to our clients, many of whom like Kier, we are doing repeat business with. Leveraging our through-the-cycle track record and trusted partner approach.