The real estate market is poised for a promising year in 2025, with numerous significant deals on the horizon and investor optimism on the rise. According to the latest research from Lismore Real Estate Advisors, 2025 is expected to be a year of growth and opportunity, driven by strong investor confidence and resilient market sectors.
Positive Market Trends and Early Optimism
Lismore’s quarterly investor review reveals that £406 million was traded in Q4 2024, marking a 6% increase from the same period in 2023. While Q4 2024 trading volumes were slightly below the five-year average (down 4%), the report highlights that several significant transactions are set to complete in early Q1 2025, setting the stage for a positive start to the year.
A notable 88% of respondents in the Lismore survey see 2025 as a year of opportunity. Fund and investment managers, in particular, are optimistic about the market’s potential. However, the research also notes challenges, such as economic contraction and pressures on retailers and recruitment, that could affect certain sectors.
Key Sectors for Growth in 2025
According to Lismore, the sectors expected to perform best in 2025 include industrial, living, and retail warehousing. 77% of investors identified these areas as resilient and liquid, making them attractive options for investment.
While there are some concerns, particularly about economic pressures and the impact of interest rate trends on yields, the report expresses cautious optimism. Stabilised pricing, strong rental growth in prime industrial areas, and high-street retail are all contributing factors. Potential yield compression is anticipated later in the year, contingent on interest rate movements, but investor sentiment is generally positive.
“After a challenging period, the market is showing clear signs of recovery. Investment volumes are rising, interest rates are easing, and confidence is returning,” said Simon Cusiter, Director at Lismore. “We expect 2025 to mark a more stable recovery phase, with investors focusing on sectors and locations primed for income growth.”
Regional and Sector-Specific Opportunities
Some regions and sectors stand out in the 2025 outlook. For instance, Scotland’s logistics and multi-let industrial market is gaining attention, with rents remaining competitive relative to other UK regions. The M8/M74 corridors and urban estates are expected to see strong growth. Additionally, Edinburgh’s central business district (CBD) is forecasted to experience demand exceeding supply, particularly for core city-centre office spaces.
The Build to Rent (BTR) residential sector is also seen as a major opportunity, with recent Glasgow transactions suggesting a return of liquidity. Lismore highlights the sector’s untapped potential, especially in urban locations with rising demand for rental housing.
Long-let, inflation-linked assets—particularly in hotels and leisure—are attracting investor interest due to their relative pricing advantages. These assets offer stable returns in a market where inflation remains slightly elevated.
Emerging Trends and Niche Opportunities
While traditional sectors like office space and high street retail are expected to show solid performance, investors are also looking to emerging opportunities. Sectors such as data centres and life sciences are gaining traction due to their ties to technology and healthcare. These niches, while still relatively new, promise substantial growth as digitalisation and demand for advanced healthcare solutions continue to increase.
“2025 presents a mix of challenges and opportunities for real estate investors. Sectors like industrial, retail warehousing, and residential are poised for growth, driven by demographic shifts, digitalisation, and supply chain demands,” said Tom Elviss, Fund Manager at Columbia Threadneedle.
Investor Sentiment and Global Capital Flows
Confidence is increasingly seen as a key driver in 2025. The Lismore report shows a significant increase in investor confidence, rising to 30% from 21% in Q4 2023. Macroeconomic improvements (21%) and stabilising debt terms (27%) are also contributing to the positive outlook. As global capital continues to flow into the market, sustainability credentials and rental growth are expected to enhance the appeal of real estate investments.
Despite ongoing challenges, such as economic uncertainty and rising operational costs, liquidity will remain a key factor. Investors will likely focus on sectors with resilient fundamentals and adaptable operational models, while motivated vendors are expected to enter the market, fueling increased activity.
Looking Ahead
While the first half of 2025 may continue some of the trends from late 2024, Lismore anticipates a shift toward greater market activity in the second half of the year. With improved investor sentiment and more opportunities in key sectors, 2025 is shaping up to be a year of stable recovery and growth in the real estate market.
“Confidence is key, and as we look toward the second half of 2025, the market is expected to gain momentum, setting the stage for a promising year ahead,” concluded Cusiter.
With strong sectors, strategic investments, and emerging opportunities, 2025 is set to be an exciting year for real estate growth.
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