After Germany, the UK is the biggest commercial real estate market in Europe, valued at over 1.5 trillion U.S. dollars. Commercial real estate can encompass multiple property types with a focus on financial return and renting, such as industrial, office, retail, leisure, medical, hotel, and in some cases even the privately rented residential subsector. In the UK, investments into commercial real estate peaked in 2015 but have been decreasing since. In 2020, the commercial property investment market saw the lowest value since 2012, measuring roughly 46.3 billion British pounds. Among many other factors, this fall in investment activity can be attributed to the lengthy period of Brexit negotiations and the coronavirus pandemic.
The past year and a half accelerated various trends in the UK real estate market. A large share of the office workforce switched to working from home, raising the question about the role of office space in the future. Between the fourth quarter of 2019 and 2020, office space vacancy rates increased across most UK city centers, while rents slightly fell. Furthermore, with the growth of the online retail sector, the spotlight is on the industrial and logistics real estate sector: In the first quarter of 2021, it outperformed office real estate by volume of investment.
These processes also affect the residential sector, demand, and subsequently house prices around bigger cities. In the past year, the housing market in the UK has been heating up with prices rising as supply remains low. In 2020, the average house price in London at 485,000 British pounds was twice as high as in West Midlands. Most households in the UK own their homes and rely on a mortgage for home financing. Comparing home ownership rates in different European countries, it can be seen that the UK ranks close to the Netherlands, Sweden, and Denmark, with 65.2 percent.