Renewal on Rations?

Posted by Knight Frank Newcastle on 20th June 2025 -

The UK Government’s 2025 Spending Review is a statement of ambition delivered through a narrow fiscal aperture.

Headline commitments - £113 billion in capital spending, targeted investment in defence, energy, and R&D - offer powerful signals for long-term transformation. But for stakeholders in commercial real estate, today’s review is as much about what's missing as what’s announced.

For all the talk of national renewal, the burden of delivery has been pushed toward the next parliament. Infrastructure promises remain skewed toward longer timelines, with funding often repurposed rather than new. And with day-to-day departmental spending increasing just 1.2% in real terms, fiscal discipline may dampen momentum in the short term.
Still, the macro message is clear: the UK is backing its future on innovation, regional growth, and sector-specific stimulus. The challenge for investors, developers, and occupiers alike is navigating where public intent translates into commercial opportunity.
 

Science, Innovation and the Golden Triangle Gets Company

"The government’s £86 billion R&D package… sends a strong signal: science, technology and innovation are central to the UK’s growth ambitions" 

Jennifer Townsend

The government’s £86 billion R&D commitment, backed by infrastructure investment and further support via the British Business Bank, reinforces science, technology and innovation as central to the UK’s long-term growth strategy.  Holding that budget firm under tight fiscal conditions is itself a signal – though inflation-adjusted, the uplift may prove more symbolic than transformative without further support.  From autonomous vehicle trials to digital health reform and a world-leading AI-powered drug discovery database, the Review entrenches the UK’s advantage in converging sectors like life sciences, advanced data analytics and real-world testing environments. 

A broader innovation map is also taking shape.  Place-based investments such as the Local Innovation Partnerships Fund and emerging collaborations between Manchester and Cambridge reflect a more nuanced strategy that acknowledges the power of distributed clusters and cross-regional knowledge flows.  New fellowships and global talent initiatives further position the UK as a magnet for high-skill, high-value sectors.  But barriers to scale remain: infrastructure gaps, financial constraints in academia, unresolved pricing and tax policy questions, and persistent undercapitalisation risk blunting the commercialisation pipeline.  With the Industrial Strategy refresh and infrastructure roadmap still to come, CRE stakeholders will be watching closely – not just for headlines, but for the levers that unlock viable growth environments. 

UK Cities: Transport Provides Promise with a Political Horizon

"Much of this funding is not new… Its success depends on sustained political will, cross-party support, and effective long-term delivery."

Darren Mansfield

The £15.6 billion allocated to city-region transport sounds bold – but a closer read reveals the familiar issue of repackaging.  £5.7 billion was already committed under the City Region Sustainable Transport Settlements, and only £0.5 bullion has been brought forward for early delivery.  The rest is stretched between 2027 and 2032 – well beyond the next general election. 

The real estate implications are therefore dependent not just on funding, but on follow-through.  Projects across Greater Manchester, West Yorkshire, the Midlands, and Tees Valley hold potential to boost land values and occupier demand in under-connected areas – but for CRE players it’s a visibility issue.  Without clear timelines and delivery governance, this boost may be deferred.  Northern Powerhouse Rail will be a critical bellwether in the months ahead.

London: Core Strength, Peripheral Focus

"This Spending Review is more focused on ensuring stability, and London has unfortunately seen very little direct mention… but further commitment into funding the AI Action Plan will help cement London as the AI capital of Europe."

Chris Dunn

London was left off the infrastructure map, with projects like the Bakerloo Line and DLR extensions omitted, but remains a magnet for investment in AI and tech. The £2 billion AI Action Plan reinforces this, and major corporate announcements during London Tech Week only underscore its appeal. The message? London’s growth trajectory is increasingly tech-led, with physical infrastructure upgrades taking a back seat.

Industrial and Logistics: Defence-Driven, but Uneven

"The government’s ongoing emphasis on defence investment… is anticipated to generate a significant boost for defence manufacturing and related supply chain activities." 

Claire Williams

There are green shots for industrial and logistics real estate – and perhaps more to come from the delayed Industrial Strategy now scheduled for June – but they are patchy and highly contingent on sector-specific drivers.  The most immediate upside lies in the defence and clean energy sectors, where spending is concentrated and relatively shovel-ready.  The approval of Sizewell C and increased defence budgets are already catalysing demand in markets such as Portsmouth and Filton.  

However, while there’s growing localised demand in these corridors, national logistics operators saw few headline wins.  The Spending Review made no new commitments to road freight upgrades or strategic logistics infrastructure.  This omission is critical.  With freight demand forecast to grow and urban logistics needing better arterial support, the absence of a logistics strategy weakens the sector’s broader case.

As a result, developers and investors must focus on sub-sectors and geographies where alignment with national priorities – defence, energy, advanced manufacturing – is strongest.  

Healthcare: A Boost, With Barriers

"Increased spend does not automatically convert to improved output… It is important to understand the strategy with regards to the deployment of such a funding boost." 

Ryan Richards

The NHS funding boost, equating to £29 billion over three years and including £500 million for tech, sounds generous. But in real estate terms, it raises familiar questions. Will this drive new outpatient facilities? Unlock public-private partnerships? Improve step-down and bed-blocking infrastructure? History suggests caution. Meanwhile, social care - especially elderly and nursing care - remains underfunded, with no clear path forward. Real estate solutions may be needed, but the policy scaffolding remains shaky.

Retail & Leisure: Acknowledged, Then Abandoned

"Two shout-outs for the high street - no strategy, no support. Rising costs, no reform. Retail remains politically sidelined." 

Stephen Springham

In a review that name-checked struggling town centres, the high street received symbolic recognition—but no tangible backing. With no movement on business rates reform, no revitalisation package, and the confirmed rise in minimum wage, retailers facing structural headwinds were left with little to celebrate.

Today’s confirmation from ONS of the loss of over 360,000 retail jobs in the last decade underscores the scale of decline and the urgency for action. Yet beyond isolated community project funding, there was nothing in this Review to shift the trajectory. For commercial real estate, the implication is continued polarisation: prime assets in destination-led locations will hold, but weaker stock in oversupplied high streets faces growing redundancy.

The burden of reinvention now rests locally. Without national policy levers, it will be up to landlords, local authorities, and institutional stakeholders to reimagine vacant retail space—into health hubs, community infrastructure, housing, or hybrid formats that reflect modern urban life.

Capital Markets: UK Stability Finds New Appeal

"The tight fiscal stance outlined in the Spending Review is likely to raise concerns about the UK’s economic outlook. That said, this is part of a broader global trend..."

Nik Potter

From a capital markets perspective, the UK’s approach is fiscally conservative but globally distinctive. While other economies wrestle with inflation and tariff uncertainty, the UK’s steady hand, particularly in trade negotiations, has enhanced its safe-haven appeal. Overseas investors are already responding. Cross-border capital flows into UK regional markets rose 39.1% in Q1 2025 alone, extending a trend that began in mid-2024.

What’s striking is the geographical diversification of this capital. If London were excluded, the UK would still rank as the world’s third most attractive destination for CRE investment - trailing only the US and Germany. This reinforces an evolving investment thesis: stable policy, sector-specific stimulus, and regional potential make the UK an increasingly differentiated play on the global stage.

Business and Occupier Implications: Bold Bets, Long Shadows

"Today’s Spending Review fires the starting gun on a new investment cycle… But with day-to-day departmental budgets rising just 1.2% in real terms, tax policy left hanging, and a volatile global environment… the long game remains uncertain." 

Lee Elliott

For occupiers, this Spending Review is a high-stakes equation. Defence contractors, infrastructure firms, clean energy players, and AI developers will find opportunity. But questions about delivery capacity, project pipelines, and policy follow-through remain. And with tax policy postponed and operating environments tightening globally, today’s announcements offer direction not certainty.

Sector specific stimulus – from AI to defence and clean energy – offers clear signals, but real-world barriers remain: planning delays, infrastructure lags, and an unresolved tax environment not to mention global economic volatility.  In such a landscape, opportunity derives not from policy ambition but from execution.  For businesses, that means aligning their real estate strategy with where capital, capability, and clarity converge. 

Conclusion

The 2025 Spending Review offers a roadmap for long-term national renewal, not short-term relief. It champions innovation, regional growth, and geopolitical resilience but filters ambition through tight fiscal controls. For commercial real estate, the direction of travel is encouraging: more capital into R&D, more demand for specialist space, and more momentum behind regional clusters.

Yet with stretched delivery capacity, patchy infrastructure strategy, and limited near-term relief for core sectors like retail, caution remains warranted. In a landscape where rhetoric often outpaces rollout, the smart money in CRE will follow the places where political ambition meets executable delivery. That’s where real value will be created.