18 August 2025 — The UK office market is showing signs of resilience, with Altus Group’s Q2 2025 report revealing that office values rose 0.8% quarter-on-quarter, comfortably outpacing the European average increase of 0.3%.
The findings point to rising rental growth as the key driver behind investor interest, even as overall year-on-year values remain flat and still sit 7% below levels seen in mid-2024.
Quarterly Growth Outpaces Europe
Altus’ latest analysis shows that while the UK continues to face challenges in office demand and financing conditions, its Q2 performance exceeded the broader European market.
Across the continent, commercial real estate valuations grew by 0.6% between Q1 and Q2 2025, with an annual gain of 2.8% compared with Q2 2024. The UK’s stronger quarterly showing highlights how rental growth and investor repositioning are beginning to stabilise sentiment in the sector.
Rental Growth Fuels Investor Interest
Altus vice president Phil Tily explained that rental growth is proving to be a critical buffer for office values. “These gains suggest that market fundamentals are stabilising and positioning the sector for the next phase of the real-estate cycle,” he said.
With high-quality office space in short supply — particularly in central London and core regional cities — landlords have been able to push rents higher, even as overall capital values remain below their recent peaks.
Key factors driving rental strength include:
- Limited supply of Grade A offices, especially those meeting new environmental and ESG standards.
- Rising occupier demand for modern, flexible, and energy-efficient buildings.
- Corporate consolidation, with businesses willing to pay premium rents for fewer but higher-quality spaces.
Market Fundamentals: Stabilisation in Sight
While the office sector has faced heavy headwinds since 2022 — including remote work trends, rising financing costs, and geopolitical uncertainty — the Altus data suggest that a stabilisation phase is emerging.
- Quarterly growth has now returned after several years of decline.
- Investors are increasingly focused on long-term rental income stability rather than short-term capital appreciation.
- Leasing activity in prime UK markets is gradually picking up, though secondary offices continue to underperform.
Broader European Context
The Altus findings also confirm that Europe’s commercial property market is in the midst of a cautious recovery. Q2 marked the fourth consecutive quarter of valuation gains, pointing to a slow but steady rebalancing of pricing after sharp corrections in 2022–23.
However, performance remains highly uneven across markets. Core hubs such as Paris, Frankfurt, and Amsterdam are showing healthy resilience, while secondary and tertiary locations continue to struggle with high vacancy rates and limited investment appetite.
Outlook: Next Phase of the Cycle
According to Altus, the UK office market’s near-term trajectory will depend on three major factors:
- Bank of England interest-rate policy — further cuts could ease financing costs and encourage more transactions.
- Occupier demand for sustainable offices — ESG requirements are becoming a decisive factor for both tenants and investors.
- Global investment flows — overseas investors may return in larger numbers if sterling remains competitive and UK yields stay attractive.
While annual growth remains flat, the quarterly uptick signals that the sector may be approaching an inflection point. Investors are cautiously optimistic that office values have bottomed out and that the next stage of the cycle will be driven by rental performance and selective capital growth.
Conclusion
Altus Group’s Q2 2025 analysis reinforces a cautiously optimistic narrative for the UK office market. Rising rents are helping support values despite lingering structural challenges, and investors are beginning to see signs of stability.
Although office values are still 7% lower than a year ago, the stronger quarterly performance compared to the rest of Europe suggests that the UK is well positioned to lead the sector into its next growth phase — provided that occupier demand and rental resilience continue to underpin investor confidence.
