UK real estate market commentary - April 2026
Renewed geopolitical upheaval has clouded the economic outlook and could slow or stall the nascent real estate recovery, but supportive factors related to supply constraints and extensive repricing in recent years remain.
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Economic backdrop
The escalation of conflict in the Middle East that commenced in February has introduced significant uncertainty to the UK macroeconomic and real estate market outlook. This has the potential to significantly worsen the trajectory of inflation, growth and interest rates, both initially and through more pronounced second-order effects.
Shifting outlook
At the beginning of 2026, the baseline expectation was for modest but resilient UK economic growth, despite a challenging geopolitical backdrop. Inflation had continued to ease, with CPI declining to an annual 3.0% in February, supporting expectations that the Bank of England would continue a gradual monetary easing cycle.
This view was reinforced by softening economic momentum: GDP expanded by just 0.1% quarter-on-quarter in both Q3’25 and Q4’25, while the labour market showed signs of loosening, with unemployment rising to 5.2% – its highest level since the pandemic. Slowing wage growth and a higher personal tax burden were expected to weigh on household consumption.
The outlook has now changed and is dependent upon the duration and intensity of the conflict. The sharp rise in energy prices has already introduced a renewed inflationary impulse, prompting the Bank of England to pause its easing cycle and hold the Bank Rate at 3.75% in March. Markets have been highly volatile, reacting quickly to events as they unfold. For interest rates, market expectations have shifted to a higher probability of renewed tightening, with the likelihood of further rate cuts this year now seen as unlikely.
Market impacts
This dynamic has been reflected in UK gilt yields and money markets, where UK 10-year gilt yields and five-year swap rates have risen by approximately 60–70 basis points since the onset of hostilities. The March Consensus Economic forecast points to a combination of weaker growth and higher inflation reflecting increasing stagflationary risks.
However, the current shock differs from that following Russia’s invasion of Ukraine, which triggered rapid monetary tightening when an energy shock coincided with pandemic-related supply bottlenecks related to a demand surge following the end of lockdowns.
In contrast, the growth environment before this latest conflict began was already subdued. The rise in energy costs acts as a de facto tax on households, impacting real incomes and further constraining consumption, which was already slowing - from 0.4% quarter-on-quarter in Q3’25 to 0.2% in Q4’25. Early survey data such as PMIs already point to a further softening in activity, while a loosening labour market should help contain wage pressures.
Looking ahead, a prolonged period of elevated energy costs would raise the likelihood of negative second-order effects, including entrenched cost-push inflation and challenging stagflationary pressures.
By contrast, a relatively swift resolution – potentially as early as May, as some commentators suggest – could allow the Bank of England to look through what would be a sharp but temporary shock. In such a scenario, the impact upon growth would likely be transitory, reducing the risk of sustained second-round effects and limiting potential for lasting impairment to real estate markets.
UK real estate market
For UK real estate, the nascent recovery and positive momentum seen in 2025 transaction volumes, fundraising and value movements, is at risk of stalling – although real estate data points remain in short supply at this stage.
Pricing and activity trends unclear
Pricing for publicly traded UK REITs has fallen from early March, providing an early signal of how market conditions are feeding through to property values, particularly for those with higher debt levels and large development pipelines. UK REIT pricing has witnessed a limited recovery since, in line with equity markets, but remains volatile. Meanwhile the latest MSCI UK Monthly Index published in March showed a 1.1% annual increase in all property capital values, driven by performance in retail and industrial.
Preliminary investment volumes data from MSCI RCA show a subdued start to the year. With approximately £8bn invested in Q1, activity was 35% lower than the Q1 average of the last five years. Again, this will not have captured the impact of recent events given that transactions closed in March would have been negotiated weeks before the outbreak of the conflict.
Sentiment lower – but ‘safe haven’ potential remains
The current backdrop is naturally going to cause investors to pause and reflect upon planned investments and allocations for 2026. INREV survey data for European real estate suggests the situation is feeding through to sentiment for real estate, with the consensus indicators showing a decline in the outlooks for liquidity, development and the broader economy.
Whilst many investors are currently modestly under-allocated to real estate, a sustained equity market downturn could trigger a portfolio rebalancing away from the asset class. At the same time, limited distributions from private real estate funds are likely to continue, thereby impacting investor appetite to make new capital commitments.
Investors are, however, increasingly accustomed to operating under heightened volatility, and any stabilisation in macroeconomic conditions could support a relatively swift recovery in activity. Further, real estate could attract selective “safe haven” inflows, particularly into prime, high-quality assets in core markets.
Following the significant correction in capital values of approximately 25% between mid-2022 through mid-2024, real estate continues to offer attractive entry pricing. In the near term, assets with inflation-linked leases or strong pass-through mechanisms in operational sectors should offer better cashflow resilience and relative value support. More positively, INREV’s consensus indicators for leasing and operational performance prospects remain upbeat.
Competing pressures in occupier markets
On the occupier side, the renewed uncertainties will weigh on confidence and may see decision-making put on hold, resulting in subdued occupier activity in the near-term. On the other hand, occupiers continue to face declining supply of high-quality space amid curtailed development pipelines. These pressures could intensify further, with escalating energy prices likely to have a notable impact on the price (and in some cases availability) of important construction materials, thereby driving already elevated construction costs higher. This could further constrain new supply and intensify cost-push pressures on rents. At the same time, rising costs will push capital expenditure budgets higher.
Investment outlook
For now, our preferred portfolio positioning remains broadly unchanged. We continue to expect asset- and location-specific characteristics – such as building quality and sustainability credentials – to play an increasingly important role in driving relative performance. Indeed, the current environment is likely to reinforce both investor and occupier focus on energy-efficient assets that offer greater resilience and can command rental and pricing premia.
Industrials and logistics: Structural tailwinds persist
We continue to see value in industrial estates (including outdoor storage), cross-dock warehouses, and urban logistics assets, supported by structural tailwinds from e-commerce and urbanisation. While tenants may face short-term margin pressures, increasing geopolitical fragmentation is likely to accelerate supply chain reconfiguration, with a focus on resilience. At the same time, concerns around obsolescence and carbon reduction targets are driving demand for new or refurbished space against a backdrop of constrained supply.
The growing importance of access to secure and renewable power also presents opportunities for landlords to generate additional income, for example through on-site charging and energy provision. In parallel, rapid growth in AI is underpinning strong demand for data centres and powered land, sustaining elevated investor interest.
Retail: Selectivity remains key
The retail sector has stabilised, with recent valuation data pointing to a recovery across several segments following a prolonged period of adjustment. While elevated income yields on rebased rents offer potentially attractive returns, renewed pressure on consumers and retailer margins warrants caution – particularly given the sector’s exposure to second-order effects if the current situation persists. Our approach remains highly selective, with a preference for retail parks and resilient convenience-led formats, including supermarkets in strong and growing catchments with high footfall.
Office: Location, location, location
In the office sector we remain selective, favouring well-located, high-quality offices with sustainability certifications1 in London, major regional centres and knowledge-driven economies. Lower growth, deteriorating financing conditions and falling economic sentiment would naturally impact location decision-making and squeeze corporate spending.
More broadly, office occupancy levels have found a “new normal”, with hybrid working arrangements now a permanent feature. Occupiers are expected to continue to seek high-quality space to attract and retain talent and encourage office attendance. Modern office space is already scarce across major UK city centres, and recent market disruption could increase scarcity further. The increased adoption of AI tools could impact overall levels of demand that will vary by sector; something we will be monitoring closely.
Evolving opportunities: Self-storage and ‘living’ sectors
We highlight that UK real estate portfolio allocations continue to evolve and are drawn to sectors where operational improvement can unlock alpha and cashflows aligned to inflation through ‘pass through’ effects. This backdrop underlines the importance of this feature, especially in an economy that is likely to see inflation remaining elevated.
A key consideration will be how exposed margins and cost structures in these segments are to higher energy prices. Preferred sectors include self-storage, which has lower energy usage, and represents an attractive consolidation opportunity. Living and ‘social infrastructure2’ segments such as medical centres provide long-term resilient cashflows driven by longer-term demographic trends rather than economic cycles.
We also see a significant opportunity for private capital to support the delivery of affordable and social housing3, offering contractual, inflation-linked income alongside positive social impact. Affordability pressures – exacerbated by higher inflation and interest rates – are likely to sustain demand, while the sector benefits from strong policy support.
Secondaries and recapitalisations
Lastly, compelling recapitalisation and secondaries opportunities continue to exist across real estate platforms, funds, and other holding entities. These involve providing flexible capital solutions to established management teams facing time or capital constraints in optimising value. Opportunities are being fuelled by cyclical and structural dynamics – particularly the need to address operational complexity and sustainability requirements, and capital value declines of 20-30%+ that have exacerbated balance sheet and asset funding challenges.
1 Sustainability certifications are accreditations which assess sustainability credentials of buildings, for example BREEAM.
2 In this context only, we are defining social infrastructure as healthcare, employment opportunities, education and training.
3 As defined in Annex 2 of the National Planning Policy Framework or any subsequent regulatory definitions, as well as specialist housing, sheltered housing and other forms of housing for residents facing homelessness or other crisis situations, whether regulated or otherwise.
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