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Prime global rental markets have entered a new phase 鈥� one that contrasts markedly with the volatility of the Covid-19 era. 

Rents across the 16 cities in our climbed 3% in the year to Q1 2025, up from 2.3% in the previous quarter. This is the third quarter in which our index has been largely stable, after slowing sharply from the 10.7% growth posted in Q1 2022. 
While demand remains resilient in core hubs, returns are moderating, and investors must increasingly account for inflation, currency risk, and local regulatory factors when assessing performance. Above-trend growth has been concentrated in US and Asian cities. Top performers over 12 months include Los Angeles (+7.0%), Hong Kong (+6.5%), and Tokyo (+6.1%). 

Famously optimistic

Breaking the UK鈥檚 long-running productivity stagnation is now central to the country鈥檚 economic future. In the short term, if the Office for Budget Responsibility鈥檚 1% annual productivity growth falls short, Chancellor Rachel Reeves may be forced to tighten fiscal policy 鈥� either through spending cuts or tax increases 鈥� to stay within her own debt rules. 

A 1% growth rate would be twice the average since much of the post-financial crisis era, and the OBR is famously optimistic on this topic (see chart from the IFS). Should the group's lower productivity scenario come to pass, the budget deficit would shrink to £20 billion by 2027-28, from £61 billion today, before ballooning back to nearly £50 billion in 2029-30. That would leave the government's targets in tatters. 

Bank of England governor Andrew Bailey told a House of Lords committee yesterday that he was "" about the OBR's outlook on productivity. Bailey reckons it would require major technological developments to drive much higher productivity growth, pointing to artificial intelligence as the most likely candidate, according to the FT write-up. 鈥淲e are all essentially experimenting with AI at the moment,鈥� he added.

 Planning delays

The longer-term gains of solving the productivity puzzle eclipse the negatives of shorter-term tinkering with taxes to meet self-imposed fiscal targets. Improving productivity levels in 146 local authorities by 1% could deliver an £82 billion boost to the economy during the next five years, according to a new report by economists at WPI Strategy on behalf of the Building Back Britain Commission (BBBC). British Land is one of ten major companies on the BBBC. 

The report, shared , suggests that we don't need to pin our hopes on AI, either. The BBBC's recommendations include the creation of a "pipeline fund" to help speed up planning decisions. The fund would be "privately financed and independently administered" and used to allocate experienced planners to local authorities that have a shortage in their own teams, according to the write-up. 

This is a sensible suggestion and is one that ministers may well take up as the Chancellor's fiscal headroom shrinks, as many expect it will. The government has made many sensible reforms to the planning system since it took power last year, but there is still so much to do 鈥� especially when it comes to planning delays. Six-in-ten respondents to our latest of more than 50 volume and SME housebuilders cite planning delays as a key drag on activity.

Severe implications

Heat pumps are absolutely central to the UK's emissions reductions targets. Homes represent about 70% of emissions from the built environment, and falling behind "will have severe implications for longer-term decarbonisation", according to the latest from the Climate Change Committee. 

This is the first progress report I can remember in which the government gets a pat on the back. Heat pump installations are growing fast 鈥� installations surged 56% last year. Incentives are working, with 23,000 heat pumps installed under the Boiler Upgrade Scheme in 2024, an increase of 83% on 2023. However, a significant scale-up in rollout is still needed, the Committee says.

The UK鈥檚 heat pump market share remains low at around 4%, significantly behind comparable countries such as Ireland (30%) and the Netherlands (31%). Meanwhile, only 13% of new builds completed in 2024 have a heat pump. While some of the rest are being constructed with other forms of electric heating, 71% have a fossil fuel boiler.
Incentives are clearly having an effect 鈥� but not yet at the scale required. The ratio of electricity-to-gas prices is still too high for households to fully benefit from heat pump efficiency gains. As the Committee points out, consumers that switch to electric technologies are paying more than the actual cost of supplying the extra electricity they demand, because of policy decisions taken many years ago. The Committee's central recommendation is for those costs to be removed 鈥� a typical household with a heat pump is paying around £490 per year in policy costs, for example. Cutting the ratio of domestic electricity to gas prices from around 4:1 currently to between 2:1 and 3:1 would bring the UK into the range of other countries, such as Ireland and France, who are ahead on heat pump rollout (see chart).

 
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