Capital Markets

January 2026 Forecast

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.

Midyear review

• Investment momentum was impacted by the US-Iran conflict in H1 2026, with volumes in H1 totalling £23bn and reflecting an 8% decrease relative to H1 2025. Investment in H1 was driven by the living and office sectors, which both saw H1 2026 volumes increase by 7% relative to the first half of 2025.
• The dislocation between prime and secondary assets has continued in the first half of this year, highlighted by the performance results from the CBRE UK Monthly Index. The trend is particularly evident in the office sector, with Outer London/M25 offices seeing values fall by 4.8% over H1, while Central London values have remained flat. We expect stronger performance of prime buildings and locations to continue in H2 2026 across most sectors, with these assets benefitting from occupier demand, while high construction costs are constraining supply.

January 2026 Forecast

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.

Midyear review

• There is increased overlap between commercial real estate and infrastructure in the UK. Alternatives, living, and healthcare sectors’ share of investment has increased over the past 10 years from 15% to 44% in 2025, and accounted for 38% of H1 investment volumes. We expect these assets to continue to be attractive to investors, particularly with UK defined contribution pension funds’ commitment to allocate capital to private UK markets and looking to sectors with index-linked cash flows.
• The trend is being driven by the UK’s demographic profile, alongside digitisation, decarbonisation and deglobalisation. Additionally, real estate assets that overlap with infrastructure sectors provide better risk-adjusted performance when compared with mainstream commercial real estate assets.

January 2026 Forecast

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.

Midyear review

• Despite the impact of geopolitical uncertainty on the outlook for inflation and interest rates, debt markets remain liquid. According to our European Lender Intentions Survey, of which 31% of the sample were UK-based, 72% of respondents expect to increase their originations in 2026. This confidence persisted despite the survey being conducted after the outbreak of the US-Iran conflict.
• The US-Iran conflict caused borrowing costs to increase, deferring some transactions but with limited material impact. Five-year swap rates have started to moderate, and this should promote increased acquisition activity. However, most lenders still expect their lending to be primarily driven by the refinancing of investments, rather than a more diversified demand for debt.

H2 2026 Outlook

Current pricing levels support stronger income return and buying opportunities across UK real estate markets

Performance from the CBRE UK Monthly Index over H1 2026 affirms that the UK real estate market is in an income-driven returns environment. All property total returns throughout H1 were 2.5%, however income return was 2.8%.

Additionally, prime yields have repriced over the past three years, with all property types (except retail parks) within 25bps from their 10-year high. Therefore, not only are we in an income-driven return cycle, the income return for prime property has also increased.

The outlook for UK prime yields in the direct market represents a buying opportunity at current prices. Similarly, attractive pricing has spurred corporate transactions across both private and listed UK real estate, with continued M&A activity throughout H1 2026.

Occupier fundamentals across most UK sectors remain resilient for core locations. There is sustained demand for new, A grade space, and higher construction costs are constraining new supply. We expect these dynamics to continue to drive rental growth in the prime segments of the market, with the capital growth witnessed in some sectors being driven by rising rents rather than yield compression. At the same time, swap rates have been moderating, and we expect this to counteract upward pressure on yields.

Figure 3: UK prime yields