Role of US Capital in the UK
US capital has played an important role in the UK commercial real estate (CRE) investment market in recent years. In 2021, it accounted for over a quarter of total investment volumes. While its share declined in 2022 and 2023, we made the call that US demand was set to rebound in 2024. (See here.)
Looking back over the past year, we were right to take this view. US investment was up by 16% in 2024 compared to the average seen over the previous 10 years, while volumes were down from all other sources. As a result, US investors rapidly regained market share. (See Chart 1.)
The resilience of US investment was a result of substantial capital raising in preceding years, willingness to operate higher up the risk curve and compelling incentives to invest abroad. For example, uncertainty around the November 2024 US Presidential Election may have caused caution domestically. Meanwhile, CRE pricing corrected more quickly in the UK, boosting its appeal relative to the US.
What's Next for US Investors?
While capital raising globally has slowed significantly from its highs in 2021 and 2022, MSCI data show that the amount of global dry powder within private equity closed-end CRE funds remains elevated. The same applies to Blackstone, which was by far the most active buyer of European CRE last year. As of Q4 2024, Blackstone reported $55bn of dry powder for real estate, which is comfortably above historical levels. (See Chart 2.)
US Policy Shift & Capital Flows
Of course, the latest developments in US policy will also have a strong bearing on capital flows, not just from US-based buyers but on a global scale.
For example, the risk averse nature of most investors could result in a wait-and-see approach, as they seek greater clarity on the economic outlook in order to assess the implications for CRE markets. This is likely to weigh on the near-term recovery in investment volumes, particularly as uncertainty surrounding prevailing tariff rates persists.
However, even after the ‘Liberation Day’ tariff announcements, there are encouraging signs for European CRE. Most notably, REIT share prices have fully recovered since 2nd April and outperformed the wider stock markets in the UK and euro area. This chimes with our view that well-let core assets with predictable income streams can offer stability to investors at a time when financial markets are volatile.
There is also evidence of a reallocation out of US assets in response to the weaker economic outlook, policy unpredictability and moves that risk undermining key institutions. We can see this trend in currency markets, which showed that the US dollar depreciated by around 10% relative to the pound and euro between mid-January and May. The rotation out of US assets may apply to real estate too. UK REIT share prices have comfortably outperformed their US counterparts since the trade war escalated. (See Chart 3.)
UK: A Top US Investment Destination
Our data show that the UK attracted the most US capital among European CRE markets in four of the last five years. We believe the UK is well placed to capture US investor demand again this year.
One reason is the relative stability of the UK’s economic and political backdrop, which is particularly important in times of global uncertainty. This partly reflects the government’s large parliamentary majority and commitment to fiscal responsibility. In addition, the tariff risk in the UK looks relatively low, helped by an early trade deal.
Another pull factor is the size and maturity of the UK’s alternative property sectors. In 2024, US capital mainly targeted apartments, hotels and industrial property. By investing in these sectors, US buyers were able to diversify their portfolios and capture inflation-beating rental growth. This will remain crucial for achieving high total returns due to limited scope for yield compression.
Looking ahead, survey evidence signals a continuation of this trend in 2025, with student accommodation also gaining investor interest. The maturity of the UK’s alternative property sectors, such as residential and student accommodation should help it to attract this demand. In our view, this helps to explain why the latest surveys point to the UK, and particularly London, as the top European locations for CRE investment this year.[1]
Admittedly, these surveys also signal another year of weak investor demand for offices. However, we think this would mark a missed opportunity for US buyers looking to invest in UK CRE. While we acknowledge concerns around high capital expenditure costs, we see bright prospects for the sector. Occupier market conditions have held up relatively well in the UK’s largest markets. Resilient net absorption and a lack of new development have kept a lid on vacancy rates, which are consistently lower than in US markets. (See Chart 4.)
What’s more, there is a scarcity of grade A supply, which is unlikely to change any time soon. As a result, we forecast cumulative prime rental growth in excess of 30% over the next five years in some of the UK’s largest office markets. This is a key reason why we expect prime UK offices to be one of the top performing asset classes between 2025 and 2029 in our pan-European market forecasts. (See our latest European Outlook.)
Overall, we expect the combination of attractive returns, relative political stability and mature alternative property sectors to be a major draw for US-based investors looking to avoid uncertainty in domestic markets. Moreover, the improving UK outlook should entice investors from other sources too. As a result, we expect to see a gradual recovery in investment volumes in the years ahead.
This article first appeared in CoStar.
[1] PWC & ULI 2025 Emerging Trends in Real Estate, INREV Investment Intentions Survey 2025
