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Sector trends

UK commercial real estate shaken by bond market volatility

While bond market fluctuations pose challenges, the commercial real estate sector retains some resilience.

The commercial real estate sector entered 2025 with cautious optimism, fuelled by expectations of falling interest rates and a gradual recovery in asset values. However, a surge in Gilt yields and rising medium-term interest rates early in the year has unsettled confidence. 

Issue 115 of the UK Real Estate Digest 

Read the UK Real Estate Digest 2025 

Here’s a summary from the latest edition:

  • A rise in Gilt yields tested market optimism, leading to a 5% drop in the FTSE 350 REITs index. However, REITs are more aligned with equity markets than direct real estate values.
  • Properties with bond-like income streams may see reduced valuations due to higher Gilt yields. Broader implications depend on the underlying reasons for the yield spike.#
  • While the Autumn budget dampened UK business sentiment, concerns about US policies and Federal Reserve signals also contributed to higher Gilt yields. Markets now anticipate fewer interest rate cuts in 2025.
  • Despite bond market volatility, commercial property continues to deliver rental value growth across most sub-sectors, offering some inflation mitigation.

 

For more information on the key trends to watch in the real estate market,  visit our sector trends website.

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