Chancellor of the Exchequer Rachel Reeves has delivered the Spring Statement, placing two areas of major importance for real estate at the heart of the government's strategy for driving economic growth – defence and housebuilding.

Reeves said her Labour government's second big fiscal intervention after last autumn's Budget had shifted further towards securing Britain's future economic and physical stability in the face of an increasingly unstable world.

Reeves said the government's principal task is to "secure Britain’s future in a world that is changing before our eyes".

The threat transformed when Russia invaded Ukraine, she said, and the situation has since escalated, leading to a global economy that "has become more uncertain" and borrowing costs on the rise "for many major economies".

Reeves said the government would secure Britain's security and prosperity by unlocking housebuilding and increasing investment in defence and military innovation. The government said it is increasing capital spending by a further £13 billion over the parliament, by 2029, to support "growth-enhancing investments including infrastructure, housing, and defence innovation".

There was little in the way of specific new announcements for commercial real estate to get excited about, with industry experts bemoaning a lack of movement on blockers such as building regulations, pension reform and business rates.

Walter Boettcher, Colliers’ head of economics and research, said that while the Spring Statement "weighed heavy on optimism", supported by OBR’s theoretical forecasts, the real impact of the Autumn Budget is yet to be felt directly – especially the national insurance, tax and national minimum wage increases. 

He said the Chancellor’s statement raised an "element of hope, although it is built on plans that are only meant to reach fruition later in the Budget horizon, such as planning reforms and a boost to housebuilding".

In the short-term it changes little, he added, and markets have not moved much in response because of that.

"There wasn’t much for the UK commercial property sector, although with substantial increases in defence spending confirmed both here and in Europe, some specialist sectors may begin to feel a lift from increasing investor interest."

Shabab Qadar, head of London research at Knight Frank, said the Spring Statement brought limited short-term cheer to London’s commercial real estate market, with little in the way of direct stimulus.

"Growth is forecast at a modest 1% for 2025, and public-sector spending will tighten. Office demand – already under strain from rising business costs – faces further pressure."

But he said the commitment to defence spending and other longer term areas could prove highly beneficial.

"More structurally, pension reform remains a potential game-changer. Ongoing consolidation of defined contribution schemes and encouragement for domestic investment could channel patient capital into UK commercial property, infrastructure, and regeneration. Pair that with the prospect of lighter-touch regulation – on planning, Solvency II, and institutional investment – and London may yet see a re-rating."

Nik Potter, associate commercial research at Knight Frank, picked out sector-specific areas that the government's announcements were likely to boost would be around residential development, artificial intelligence and data centres, and industrial.

One of the government's most eye-catching pledges is to build 1.5 million houses in England in this parliament, something it promises will be unlocked principally by radical changes to the planning system proposed in its Planning and Infrastructure Bill.

The Spring Statement saw Reeves provide some updates on how this is progressing.

Reeves said the planning system that Labour inherited was "far too slow". She says that the Office for Budget Responsibility has now assessed that Labour's planning reforms "will lead to housebuilding reaching a forty-year high".

Changes to the national planning policy alone, Reeves said, will help build over 1.3 million homes in the UK within the next five years, the OBR predicts. That puts Labour within "touching distance" of its promise to build 1.5 million homes.

Critical investment was announced earlier this week. The government will set out capital spending plans for the Parliament at the spending review in June, but ahead of that it has now announced an additional £2 billion for social and affordable housing for 2026-27.

To ensure the construction industry has the capacity to deliver the plan, the government also committed to funding a £625 million package for skills in construction, expected to provide up to 60,000 more skilled workers this parliament.

According to the Chancellor, the OBR says that the planning reforms included in the government’s National Planning and Policy Framework will lead to 170,000 additional homes over the forecast period. This increases the level of real gross domestic product by 0.2% by 2029-30, adding £6.8 billion to the economy, and by over 0.4% in 2034-35.

Reeves added that the economic effect of government policies, driven by planning reforms, reduce borrowing by £3.4 billion in 2029-30.

Melanie Leech, chief executive, British Property Federation, welcomed the continued commitment to unlocking housebuilding and infrastructure investment.
 
“Against an uncertain economic backdrop the Chancellor has doubled down on the commitment to ‘back the builders’, with the OBR forecasting 1.3 million homes could be delivered by 2029-30 and planning reforms could be a significant driver of GDP growth. This message will be welcomed by the industry, as will the commitments to maintain capital spending on infrastructure and day-to-day government spending alongside new funding to support construction skills."

But Leech expressed concern that the Chancellor did not focus on some of the key blockers facing the real estate industry. First and foremost she flagged the delays caused by the Building Safety Regulator which she said are still holding back new home delivery.

Leech added: "Pension funds need to be allowed to invest more in UK property, and further planning reform is needed to make it easier for institutional money to fund more social and purpose-built private rented homes.

"We need the whole industry to be firing on all cylinders, including our under-resourced planning departments. That means 3,000 more planners rather than the 300 that have been pledged and we would urge Government to consider how its Transformation Fund can be used to enhance skills and capacity.”

Royal Institution of Chartered Surveyors chief executive Justin Young welcomed the commitment to a number of measures the institution has been advocating for to support housebuilding, skills development and businesses. It flagged the social homes and construction sector skills investment.

“The £600 million of additional funding for construction sector skills is a decisive investment in the UK’s built environment. This should help secure the next generation of construction sector workers and professionals as we look to tackle the challenge of an ageing workforce alongside acute labour and skills shortages. If this can be combined with a new GCSE for the Built Environment in England, we can drive fresh talent to take up the new opportunities afforded by this investment."

Michael Wynne, co-founder of Q New Homes, said in a statement: “The reintroduction of mandatory housing targets, coupled with planning reforms, has certainly been a shot in the arm for the construction industry.

“More homes for families is also a benefit for the economy, with the OBR now forecasting that it will help to bring £6.8 billion back into the public pocket.

“The continued investment in recruitment in the construction sector will also come as welcome news. Recruiting and training new builders will be essential for the industry’s growth."

The Spring Statement pledged to go "further and faster on defence to strengthen national security, drive growth, and keep the British people safe and secure".

The Chancellor today announced a £2.2 billion uplift to the Ministry of Defence budget to "speed up the adoption of cutting-edge capabilities and rebuilding stockpiles, munitions and other essentials depleted after a period focused on international terrorism and global crises".

The announcement has significant implications for UK real estate, in particular its infrastructure, warehousing and housing sectors.

The Spring Statement said that "capitalising on the opportunity presented by the buy-back of the MOD Service Families housing stock" it will refurbish the defence estate and provide military families with the "homes they deserve".

The Chancellor said areas including Glasgow, Derby and Newport will see advanced manufacturing production with new business opportunities and creating more demand for skilled jobs. There will also be investment in modernising His Majesty’s Naval Base Portsmouth.

And Reeves confirmed plans for investment in Barrow-in-Furness in the north-west of England where the UK's nuclear submarines are maintained to create thousands of jobs.

Sarah Bolton, real estate lawyer at Taylor Wessing said the government’s £2.2 billion increase in defence spending could significantly benefit the logistics sector, as it would drive growth in defence manufacturing, industrial activities and storage needs.

"Logistics operators, particularly those handling defence-related goods and materials, would see increased demand for transportation and storage services as businesses scale up operations."

But she warned that from a planning perspective, challenges might arise due to the "use class order" in planning law.

"The use class order defines how land and buildings can be used, and this can create complications for defence-related activities. For instance, a facility dedicated to manufacturing defence equipment may not fit within the typical industrial or logistics use class. In this case, the business would need to apply for a change of use to ensure compliance with planning and HazChem and security regulations. Similarly, logistics hubs supporting the defence sector might well face similar regulatory issues, although demand for the space will be, it seems, very high. "

Qadar added that key bright spot for commercial real estate is the defence spending. "London’s role as a hub for aerospace, cyber, and defence-linked firms – particularly in the knowledge corridor from Westminster to Canary Wharf – could quietly buoy demand for high-spec office and R&D space."

Edwin Morgan, policy and public affairs director at the UK Warehousing Association, said there was concern that the government was not focused on giving the industrial sector the tools to meet its ambitions: "The buzzword of the Spring Statement was 'defence-industrial superpower', but this can't happen without a thriving warehousing sector.

"Warehousing is a critical part of the economy. It's bigger than agriculture, it's bigger than car manufacturing, it's bigger than the arts and entertainment sector, and it underpins all supply chains. As an employer of over 400,000 people, the warehousing industry is being hit hard by higher national insurance. It's also set to be whacked with additional business rates, which seems like a punishment for the investment that's gone into modern warehouses.

"Companies aren't much interested in playing the blame game, and the UK is being battered by external forces, but the Government has to find space for growth. It's critical that they follow through on planning reform, so decisions on warehouses are made fairly and quickly. Of course government departments can be more efficient – they can take a leaf out of warehousing's book, which has led the way on automation – but we need more planning officers, and enough resources for the Valuation Office Agency to make sure the business rates system works properly.

"The industry stands ready to support the government's goals, whether that's building up the defence industry or hitting housing targets. Warehousing has to be able to expand to meet these needs, so it's absolutely essential that, as part of the wider logistics sector, it's at the heart of the forthcoming industrial strategy."

There was disappointment from industry experts that Reeves did not make announcements on business rates reform.

At the Budget last autumn the government set out a commitment to reforming the system to support the High Street and boost investment. It published a discussion paper on priority areas for reform. Today Treasury, documents, the government will publish an interim report in the summer that sets out a "clear direction of travel for the business rates system, with further policy detail to follow at the Budget this autumn".

Vivienne King, chair of the Shopkeepers Campaign, said: “It is regrettable that the Government has stuck to its decision to reduce and then scrap the Treasury’s support for retail through [retail, hospitality and leisure] business rates relief, worth £1.3 billion this year.

“This amounts to a stealth tax on all commercial occupiers of retail property.  Together with rises in National Insurance it will reduce investment and damage jobs in the retail, hospitality and leisure sectors.

“The government needs to stop treating retail like a cash cow and recognise that shops and town centres are a vital part of community life. The government should reverse this damaging spending cut as soon as possible to avoid further closures on the high street.”

Alex Probyn, practice leader of property tax (Europe and Asia-Pacific) at the global tax and software firm Ryan, said all the high street had been left with was a promise of “jam tomorrow” saying “with around 27,000 high street jobs shed or at risk in the first three months of the year, the Chancellor missed a golden opportunity not to reinstate the 75% business rates discount until the wider reforms come into effect in 2026.”

He added: “The Chancellor will save £1.03 billion through the cut which comes into effect in less than a week and, from 2026, she will then be ‘robbing Peter to pay Paul’ by transferring the burden for permanently lower tax rates for the high street onto the very largest ratepayers to save a further £1.4 billion.”

Property taxes are devolved in Scotland, Wales and Northern Ireland.

The Spending Review conclusions on 11 June will have more impact for the economy and real estate industry than the Spring Statement, as government sets out its plans for spending and key public sector reforms. The Spending Review will set out plans for day-to-day spending for four years to 2028-29, and for capital spending for five years to 2029-30 alongside a 10-year infrastructure strategy. The government has committed to holding a Spending Review every two years, setting departmental budgets for a minimum of three years.

Elsewhere, the Chancellor said the Office for Budget Responsibility had revised down the UK's growth forecast for 2025 from 2% in the autumn to 1% today – a number Reeves says she’s “not satisfied with”. Longer term, the OBR says there will be GDP growth year on year until 2029-30.

She said people will be on average £500 a year better off from 2029, relative to OBR’s autumn forecast, helping to deliver the government's so-called Plan for Change.