After two turbulent years, Britain’s commercial property market is beginning to show signs of a sustained recovery — and investors are starting to take notice.
Savills reports that vacancy rates for offices in central London have dropped from a late-2023 high of 9.5% to 7.4%, marking a notable rebound, even if the figure remains above the long-term average of 5.9%. And it’s not just offices seeing renewed interest — shopping centres, industrial estates and alternative real estate sectors such as self-storage and student housing are also regaining momentum.
Investor confidence appears to be returning. Land Securities, one of the UK’s largest real estate investment trusts, spent £490 million on Liverpool One last year, calling it “one of the premier shopping centres in the UK.” The company is targeting a 7.5% income return from the asset, with expectations to increase that “meaningfully” over the coming years.
This more bullish sentiment is also reflected in market pricing. Shares in some of the sector’s biggest players — including Shaftesbury Capital, Great Portland Estates and Derwent London — continue to trade at discounts of up to 40% to net asset value, despite a clear uptick in tenant demand and rental income growth. Shaftesbury, for example, saw earnings rise 20% last year from its West End estate, prompting a £570 million investment by Norway’s sovereign wealth fund in April 2025.
For Richard Gotla of Schroder Real Estate Investment Trust (SREI), the long-term case is building. “There have been plenty of false dawns since the market peaked in late 2022,” he said. “But the real story is how little development has occurred in recent years. That lack of new supply, combined with rising demand, is pushing rents higher.”
Indeed, rental values are surging — with prime London offices fetching up to £250 per square foot in the West End. That’s a result of limited supply and high occupier expectations. Tenants now want more than just four walls and a kettle: cafes, communal spaces, and top-tier energy efficiency are non-negotiables. For landlords and developers, refurbishing quality stock in strong locations is proving more viable than new builds, which are increasingly hampered by rising construction costs and long rent-free incentives.
Outside the capital, Schroders sees strong potential in multi-let industrial estates and regional retail parks. SREI’s own portfolio is heavily weighted to these sectors, with 50% in industrial, 25% in offices, and much of the rest in out-of-town retail. The trust’s shares trade on a 20% discount to NAV and offer a yield close to 7%, supported by income that’s still below reversionary levels — meaning rental growth could lift returns even further. Crucially, 75% of its debt is fixed at just 2.5%, locking in cheap finance at a time when rates are peaking.
While London remains a core focus for some funds, others are tilting towards regional opportunities. SREI has just 10% of its assets in the capital, with more than 40% in the North. Great Portland and British Land are focused on “campus” models — integrating office, retail and leisure in developments such as Canada Water and Broadgate.
For income-hungry investors, the near-term outlook is improving. Schroders predicts annual total returns of 8% to 10% for UK real estate over the next four years, driven by a combination of rental growth, improving occupancy and a more stable interest rate environment.
Nick Montgomery of Schroders points to untapped potential in areas such as affordable housing and hotels. “It’s more attractive to be both owner and operator in these sectors,” he said.
Still, risks remain. Commercial property sentiment remains sensitive to movements in gilt yields and global shocks. But with inflation moderating and interest rate cuts on the horizon, the cost of capital should ease — providing a tailwind for property values.
In this climate, share prices across much of the sector have begun to recover, but are still trading at substantial discounts. For investors with a long-term horizon and appetite for both income and capital growth, the UK’s commercial property market might finally be stepping out of the shadows.
