Amid the noise, capital is moving again

We're just three weeks into 2026 and the geopolitical noise is ear-splitting. January tends to bring hopes of a fresh start, but the volatility that defined 2025 looks set to continue.

political stories of this era are becoming so odd that they can distract from the economic fundamentals that remain the true drivers of real estate markets. Granted, events like the current row over Greenland have the power to shift the fundamentals, but they often don't. Technology investment, combined with fiscal and monetary support and improving credit conditions, more than offset the turbulence caused by tariffs in 2025, for example. The global economy expanded 3.3%, according to the IMF. The group expects growth of 3.3% in 2026 and 3.2% in 2027.

Improving fundamentals are fuelling activity across commercial and residential markets to differing degrees. Knight Frank's new Active Capital report, out this week, includes a survey of 119 global investors with more than US$1.4 trillion of assets under management (AUM). Almost 90% of survey respondents by AUM plan to increase their investment in commercial real estate in 2026. In total, respondents plan to deploy $144 billion by the year end.

Core returns

Only 12% expect to be net sellers, teeing up an imbalance between capital seeking deployment and stock availability, particularly in transparent and liquid markets where pricing signals have already stabilised, writes Knight Frank Head of Global Capital Markets Nick Braybrook. His introduction is a good place to start.

The UK ranks as the top global investment destination with 60% of respondents planning to make investments there this year, driven by bid-ask spreads, deep capital markets and early-cycle opportunities. Germany follows closely, reinforcing its role as a core European gateway market, with France, Spain and the Netherlands also attracting strong interest. In the Asia-Pacific region, low debt costs and structural demand drivers will help lure investors to Japan, Singapore and Australia.

Core investors – generally low-risk institutional capital – have historically invested in commercial real estate for its bond-like return profile. As central banks tightened monetary policy, many drew back from real estate in favour of fixed income. As debt costs ease and bond yields moderate, that capital is now flowing back into property. Respondents expect to invest $37bn in core strategies during 2026.

Interest rates are the top-rated factor driving investment decisions, significantly outranking most other themes, including geopolitical risk.

Rising supply

The December RICS Residential Market Survey revealed a shift in sentiment among agents – see Friday's note. Near-term sales expectations surged to a new balance of +22%, the most upbeat reading since October 2024. The twelve-month outlook strengthened to +34%, also the strongest since the end of 2024.

Rightmove data this week confirmed that the clarity provided by the November budget has given buyers and sellers the confidence to return to the market. Average asking prices rose by 2.8% month-on-month in the four weeks to January 10th, the biggest increase since 2015. That follows a 1.8% fall in the previous four weeks.

Asking prices are just 0.5% higher than this time last year, and rising supply is likely to keep any exuberance among sellers in check. The number of available homes for sale was its highest for the time of year since 2014.

The long way back

New numbers from Molior London point to a marked improvement in construction starts in Q4 2025, albeit from a historically low base. Work started on nearly 2,300 private homes in the final three months of the year, up from 986 in Q3, 882 in Q2 and 1,385 in Q1.

We’re a long way from where the market needs to be. London has an annual housing target of 88,000 homes yet starts are down 84% in a decade, from 33,782 at the peak of the market in 2015 to just 5,547 last year - cost pressures, regulation, and a weaker sales market have all contributed.

Still, the numbers suggest that momentum might be returning - slowly. And with the right policy support, that uptick could be sustained. See Oliver Knight's LinkedIn update for more. You can download Knight Frank's Residential Development Land Index, which includes our survey of housebuilders, here.

In other news...

UK in ‘strong position’ to avoid further tax rises, says Rachel Reeves (FT), Housing affordability improves for the UK’s first-time buyers (FT), zero-interest solar panel loans in Labour’s warm homes plan (Times), UK retains ranking as second most important market for investment (Times), and finally, UK Posts 3.4% Inflation Rate in Pickup Set to Be Temporary (Bloomberg).