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Improving performance will spur more investment in 2026
We expect to see gradual growth in capital values in 2026, as the UK real estate market continues its recovery. This growth will be driven by rising rental values rather than significant yield compression.
We expect long-term bond yields to remain elevated next year, although this depends on how the UK economy and fiscal position evolves. Yet even a gradual rise in capital values allied to the continued receipt of income should mean another year of solid performance for UK real estate. Our prime property forecasts indicate net total returns of c. 8.5% for 2026 when aggregating across different real estate sectors.
We anticipate a more sustained improvement in investment activity in 2026. While 2025 saw more activity in certain asset types, transaction volumes were lower for the market overall. Yet, towards the end of 2025, there were more large transactions, notably in the London office market, with signs of increased activity from domestic core capital and cross-border capital.
We expect this to continue in 2026. Increased deployment into real estate by defined contribution and local government pension schemes is anticipated, supported by government initiatives to increase investment into UK private markets.
Our interest rate forecasts, together with increased competition among lenders, suggest that real estate debt costs will decrease further. This should make debt accretive for a wider range of prospective real estate investments. However, reduced equity raising for real estate in the last three years will be a drag on activity as investors look to redeploy capital into new initiatives as 2026 unfolds.
Income return allied to a gradual rise in capital values should mean another year of solid performance for UK real estate.
Figure 2: Prime commercial property yields, swap rates, and gilt yields
Note: Prime commercial property yields are a weighted average of industrial, office and retail yields.
Trends to watch
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Investment activity
We expect investment activity in core commercial real estate sectors such as retail and office to increase in 2026, reflecting improved performance after significant repricing in the last few years. Yet the near-term outlook for older, secondary stock remains challenging, especially in regional markets, unless there are viable options for redeveloping or repurposing assets into other uses.
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Sustainability
Sustainability considerations have had the most impact to date on pricing and performance in the office sector. We anticipate that 2026 will see this impact grow in other sectors of the UK real estate market as investors and lenders seek to ensure compliance with upcoming energy efficiency regulations and future-proof their portfolios against climate change.
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Alternatives
We expect investment to increase in alternative sectors such as healthcare and data centres this year as the real estate investment market continues to broaden in scope. These sectors should continue to attract insurance and infrastructure capital based on their different cash flow and performance profiles when compared with traditional real estate assets.
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Debt markets
Loan originations for real estate investment and development rose in 2025 and we expect originations to rise again this year as UK market conditions improve. While most lending last year was focused on the refinancing of investments, we anticipate a more even balance between acquisitions and refinancing as sources of demand for debt in 2026.
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The listed sector
Consolidation saw the number of listed UK REITs fall from 54 in December 2022 to 40 in December 2025. We expect this process to continue in 2026 as the market moves towards fewer, larger REITs. However, the listed sector should see stronger share price performance this year as interest rates reduce and conditions improve in the underlying real estate market.