Market Radar Europe: UK Budget receives mixed response from real estate leaders

2025 UK Budget Announcement

Chancellor Rachel Reeves’ Budget 2025, announced on Wednesday (26th), outlines a sweeping strategy aimed at boosting economic growth, reducing the cost of living, and securing long-term public finances. 

Key measures include a GBP 26 billion tax-raising initiative, targeting wealthier households through a mansion tax, higher property income taxes, and freezes on income tax and national insurance thresholds for three years. 

The Budget also includes significant investments in infrastructure, aiming to raise over GBP 120 billion in the coming years for projects in transport, housing, and energy. Welfare payments are set to increase, and household energy bills will be reduced by around GBP 150. 

However, while the Budget is designed to tackle fiscal challenges, it faces criticism for lacking bold growth measures, particularly in the areas of energy generation and housing support. The government's reliance on higher inflation and delayed tax hikes has raised concerns over its long-term effectiveness in fostering sustained economic growth.

Real Estate Budget Reactions

The real estate industry has responded to the new Budget with a mix of relief and disappointment. Key provisions, such as the introduction of a mansion tax on properties worth over GBP 2 million and an increase in property income tax by two percentage points, are expected to affect high-end housing, particularly in London and the South East. 

Although these measures provide some certainty, there are concerns that they could dampen demand, especially in second-home markets and the luxury sector, with the introduction of a mansion tax being likely to affect demand for high-end properties.

Furthermore, the Budget’s failure to reform stamp duty or introduce new housing support is a missed opportunity, according to industry leaders, who believe that these omissions will slow down recovery in the residential sector. The pressure on landlords, particularly in the private rental sector, is expected to further tighten supply and exacerbate rental affordability issues. 

While there is some optimism in the office sector, where yields have compressed and investor interest has returned, the broader market remains uncertain, with real estate executives expressing mixed reactions to the proposed measures. Some have welcomed the continued focus on planning system reforms and support for infrastructure investments, but many are concerned about the lack of immediate relief for development viability issues, particularly regarding business rates. 

London Looks Ahead

In other UK property news, CBRE's latest research, London’s Future: Driving the Growth of Real Estate, highlights significant shifts in the capital's property landscape. Over the past decade, central London has attracted an average of GBP 18.1 billion in real estate investment annually, accounting for 32% of total UK investment. 

The research shows that international investors now dominate the market, with 62% of sales since 2016 coming from buyers across Asia, Europe, and North America. London’s office and retail sectors remain highly attractive, while the tech, media, and telecommunications (TMT) sectors are now occupying a larger share of space, surpassing banking and finance, which once held a dominant position.

These trends underline London’s resilience and adaptability, positioning it for continued growth.

European Real Estate Gains Momentum

Widening our view to the continent, Europe's real estate market shows cautious optimism as it heads into 2026, driven by falling interest rates and strong demand, particularly in residential sectors like Portugal, Spain, and Germany, confirming the results of the GRI Institute's Chairmen’s Retreat survey of global real estate leaders earlier this month. 

The commercial sector also remains attractive, with global investors focusing on core markets like Paris, London, and top German cities. While prime office and logistics sectors are performing well, some areas, such as retail and peripheral office markets, continue to lag behind.

Regulatory changes are a significant factor shaping the market, with rising wealth taxes, stricter zoning, and new ESG requirements influencing investment decisions. While tighter regulations have slowed some markets, others have benefited from scarcity-driven value. 

Despite these challenges, Europe's strong investment appeal remains intact, with a focus on sustainable real estate and emerging sectors like data centres and renewable energy, which are expected to attract long-term capital.
 

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Look out for a new edition of the GRI Institute's Market Radar Europe next week!