Strategic government intervention set to drive commercial real estate momentum, according to Avison Young Outlook report

Global real estate advisor Avison Young has released its mid-year Outlook report, which presents an optimistic view of how strategic government intervention has the potential to ramp up momentum in the real estate market during the second half of the year.

In the first half of 2025, the UK economy has weathered a series of shocks, including unexpected tariffs from the US and further unrest in the Middle East, which has taken a toll on sentiment in the UK, with investors being slower to deploy capital. But while the short-term outlook is for economic indicators to remain volatile, Avison Young’s latest forecast is more optimistic, thanks to the recently announced Industrial Strategy – a welcome pillar of support in times of uncertainty.

In the industrial sector, demand remains high, with around four million sq ft already under offer, as annual take up is set to potentially match or even surpass 2024, despite the lack of stock.

The recently announced Industrial Strategy has the potential to be transformational for the sector, with the government having identified eight key growth sectors, including advanced manufacturing, life sciences, defence, clean energy, and digital and technologies. The funding earmarked for these sectors is poised to drive new demand for industrial space, diversifying the market beyond traditional occupiers.

Looking at housing, major policy support from the government is set to boost activity in affordable housing. The 10-year rent settlement announced in June will open up borrowing and investment, reflating balance sheets. The £39bn Affordable Homes Programme (AHP) will also accelerate delivery. In the build-to-rent sector, single-family housing will continue to be the most attractive proposition for investors, as a reflection of both tenant demand and the capital available. Single-family housing will also be supported by the policy focus on New Towns, driving placemaking on large new schemes to open the door for private market sale on later phases.

Despite headwinds, retail’s resilience remains strong, and recovery is underway. City centre footfall has increased by 10% year to date. The forecast for retail rents is set to rise by an average of 2.4% over the next five years, twice as much in comparison to the last three years. Demand is growing for well-located, high-quality assets, especially in prime urban areas, shopping centres and retail parks.

Robust levels of occupier demand and strong rental growth are increasing investor confidence in the UK office market, and this is set to build following the recent announcements by the government on regional growth – empowering local economies through devolution, spending on infrastructure and investment in key sectors.

The plans to relocate civil service jobs outside of London also looks set to grow demand for office space in regional cities over the next five years, sparking an increase in development activity. Central London will absorb the impact of returned office space over the longer term, given falling vacancy rates and subdued development activity.

Nick Walkley, Principal and UK President at Avison Young, said:
“The UK real estate market enters the second half of 2025 with signs of cautious optimism, if not momentum. Against a background of global economic uncertainty, the UK’s relative political stability, proactive approach to trade deals, and wave of recent domestic policy announcements provide hope of economic recovery and long-term growth.

“Much of this optimism stems from the round of significant government announcements as Keir Starmer approached a year in power. The June spending review laid out significant commitments across energy, transport, and business. It also signalled a deeper shift in how investment decisions are made, marking a clear acceleration in the devolution of spending power away from Whitehall and towards the UK’s regions.

“Combined with a generous settlement awarded to the Department for Energy Security and Net Zero, the publication of a 10-year infrastructure plan, and multiple housing announcements – particularly welcome revisions to the Building Safety Regulator – there is much that points to renewed investment and interest in the built environment.”

David Willmer, Principal, Industrial Sales and Leasing at Avison Young, added:
“The Industrial Strategy has the potential to be a gamechanger for the UK industrial market, and we’re already seeing demand increase for some of the key sectors identified in the plans, including advanced manufacturing and life sciences.

“Targeted investment will not only unlock new development but also shift the market towards more diversified innovation sectors. This strategic direction provides greater clarity and momentum for developers, investors, and occupiers alike, encouraging long-term planning and more sustainable growth.”

Helen Collins, National Head of Affordable Housing at Avison Young, said:
“The renewed strategic focus on affordable housing will be a welcome catalyst for the residential market. It gives housing providers the confidence to unlock much-needed delivery, setting the stage for long-term placemaking and supporting a more resilient housing market.

“This policy momentum signals a clearer commitment to addressing structural undersupply, encouraging collaboration between public and private sectors; prioritising affordability, stability, and community-led design; and laying the groundwork for more inclusive neighbourhoods to drive improved social outcomes.”

Richard Jones, Director, Retail Sales and Leasing at Avison Young, said:
“Retail is proving its resilience. As consumer behaviour stabilises and investor confidence returns, we expect to see demand continue to rise for well-located, high-quality assets, particularly in out-of-town locations such as retail parks.

“These destinations are benefitting from strong footfall, accessible parking, and an appealing mix of convenience and value-led retail. In an evolving landscape, occupiers are becoming more selective, favouring spaces that offer flexibility, operational efficiency, and long-term growth potential.”

Paul Broad, Principal and Managing Director, National Offices at Avison Young, said: “Both government backing and fresh opportunities arising from devolution are setting the stage for regional office markets to grow. These factors are creating the right conditions for investment, innovation, and long-term resilience in key urban centres.

“We expect to see new development unlocked, tailored to evolving workplace needs for the modern occupier, including flexible layouts, greener buildings, and smart technology integration. We also expect that demand will continue to shift toward spaces that support collaboration, sustainability, and wellbeing, driving a new wave of regional office growth.”

Avison Young’s full mid-year Outlook report can be viewed here.