A brighter outlook for the commercial real estate industry

Fight for grade A and B office spaces

With the 2030 requirement for commercial (non-domestic) properties to achieve a minimum EPC rating of B, it’s expected that commercial landlords will have increased demand fitout contractors. This is evident from Knight Frank’s market report, which shows that Grade A office space made up 77% of leasing activity in Q2 2024.

The increasing preference for energy-efficient, high-quality office spaces is pushing larger occupiers to seek fit-out services to meet future regulatory standards.

As the 2030 deadline approaches, demand for premium office spaces continues to rise, creating profitable opportunities for construction and fit-out companies in the UK commercial real estate sector.

Office reintegration

While many businesses are adopting hybrid work models, the ratio of people WFH is slowly shifting back in favour of the office. A notable example is Asda, which will require workers in its Leeds and Leicester offices to spend at least three days a week in the office starting in January 2025.

Similarly, Amazon has announced that employees must return to the office five days a week. This shift is expected to lead to a reduction in office vacancy rates, decreasing supply and driving up demand for commercial real estate.

Steadying inflation resulting in lowering interest rates

With the UK’s inflation rate at 2.3% in October, close to the Bank of England’s target of 2%, interest rates are expected to decrease in 2025, presenting significant opportunities for investors. Lower borrowing costs typically lead to an increase in commercial real estate purchases, boosting demand and potential returns.

For example, CBRE’s UK real estate investment figures for Q3 2024 show a 6.9% increase in investment compared to the same period in 2023. The office sector attracted the highest level of investment during the quarter, followed by the living and industrial sectors.

To conclude, despite relatively slow growth since 2019, the UK is forecasted to have the third-highest GDP growth rate in 2025, according to both the OECD and the IMF.

With strong projected growth, its prominent position on the global stage, increasing demand for Grade A real estate, and the growing return to office spaces, the next five years present significant potential for those in the commercial real estate industry, including investors and fit-out companies.

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