The commercial property market in Europe is currently experiencing a correction, with valuations starting to adjust to higher borrowing costs. While the UK has seen a more significant decline in property values, the rest of Europe has also experienced a drop of 10.8% in commercial real estate value. However, there are indications that the worst of the repricing may be behind the UK, as landlords observe rising rents and a limited supply attracting buyers. Nonetheless, there are still areas of weakness, such as the London office market, which is expected to face further deterioration as it adapts to post-pandemic realities and an influx of new supply.

British property companies may have an advantage over their counterparts in neighboring markets, as the correction in UK property values has been faster than previous downturns. Despite potential further declines if interest rates continue to rise, a more optimistic outlook suggests that British property companies could rebound sooner. This is in contrast to the continental European market, where commercial landlords have been hesitant to sell in an uncertain environment, resulting in fewer deals and less evidence for appraisers to reset valuations. However, refinancing strains are becoming more apparent, with some retail property companies facing credit rating downgrades due to high leverage and rising interest expenses.

The differences in price declines between the UK and the rest of Europe can be partly attributed to the contrasting monetary policies of the European Central Bank and the Bank of England. The UK's property market saw steeper drops in sectors where property yields had compressed the most in response to high demand, particularly in warehouses and City of London offices. While the UK market is considered close to fair value, there may still be some downside potential as borrowing rates have started to increase recently. However, as inflation gradually eases and central banks discuss the end of rate increases, the dynamics in the market are beginning to shift, leading to a more balanced outlook. Despite this, transaction activity in the investment markets remains relatively thin.