UK property capital values have continued to recover since summer 2024, driven by a combination of modest rental growth and yield compression, according to a report from Schroders.

The Schroders Capital Real Estate Outlook Report revealed that all property capital values recorded in the MSCI UK Monthly Index for May 2025 were 2.7% higher than a year ago. This backs expectations of a cyclical recovery in values following a 25% fall in values between mid-2022 and mid-2024.

Schroders continues to project returns of 7% to 8% this year and around 8% annually over the next five years, above the long-run average.

Oliver Kummerfeldt, head of European real estate research at Schroders Capital, said: “The UK economy continues its slow and uneven recovery in the face of fiscal challenges, uncertainty over geopolitical events and shifting global trade policy, while the UK real estate market continues its own uneven recovery following a significant correction.”

In the short term, elevated economic uncertainty is expected to weigh on occupier sentiment, leading to subdued business spending and some firms postponing decision-making, the report said.

However, there is a scarcity of modern, high-quality space and elevated construction costs are likely to curtail supply further, which should support rents and future rental growth.

Across the sectors, Schroders favours industrial estates, cross-dock warehouses and urban logistics assets benefitting from ecommerce and urbanisation trends.

Meanwhile, the retail sector has stabilised, but headwinds to consumer spending and persistent margin pressures mean Schroders’ preference remains for retail parks with minimal exposure to fashion.

In the office sector, the focus is on well-located, high-quality offices with sustainability certifications in London, major regional centres and knowledge-driven cities.