What’s in the Mix for ’26?

What will drive the market:

• The major reasons for investor caution are subsiding. Macroeconomic indicators point to a settling phase, with interest rates broadly stable and bond yields trending lower.
  
  
• This stability should foster increased activity as investors gain confidence in pricing assumptions and benefit from improved financing costs.

• The UK remains a relatively predictable market amid global turbulence, reinforcing its appeal for cross-border capital.

• Activity will be selective rather than broad-based, driven by strategic opportunities, portfolio curation and “have-to-buy” or “have-to-sell” scenarios.

• After years of subdued activity, investors are now well placed to re-enter the market, with macroeconomic stabilisation acting as a potential catalyst for renewed momentum.

Looking Back to Look Forward

After years of turbulence, the UK capital markets are finally catching their breath. The mantra of ‘survive to 25’ is fading into the rear-view mirror, replaced by a cautious optimism that 2026 could mark the start of a new equilibrium. In 2025, transaction volumes held steady against 2024 despite two key weights on the market: US tariffs and fiscal uncertainty. The start of a new year offers the perfect moment to reflect on the key macroeconomic indicators and compare our expectations from twelve months ago with the reality today.

Interest rates are stabilising, bond yields are softening, and inflation is drifting back towards target. For Commercial Real Estate, this is not a return to the boom years, but it is the closest we have come to calm waters in half a decade. The question now is not whether activity will return, but where and how selective investors will navigate a market that rewards patience and precision.

Interest Rates and Bond Yields: Stability Returns?

Interest rates best tell the story. At the start of 2025, forecasts suggesting that rates could dip below 4 per cent were met with apprehension. Few believed such cuts were likely, even as we approached Christmas. Yet by year end, the Bank of England delivered 100 basis points of reductions, bringing the base rate to 3.75 per cent. Looking ahead, expectations point to a further modest decline to around 3.25 per cent by the close of 2026. This is not a return to the ultra-low rates of the past decade, but it signals a more stable environment. Both short and long-term outlooks now suggest rates will settle higher than previous norms, marking the beginning of a period of stability not just in the UK but globally. For the first time since the start of the cycle, we are in a genuinely steady position, one that sets the stage for activity to reset. The prospect of deep rate cuts, which loomed and kept investors on the sidelines, has effectively disappeared. Sellers and buyers who held back in anticipation of more aggressive reductions now face a market where stability, not volatility, defines the outlook. This shift removes a major source of hesitation and creates conditions for renewed engagement.

Another natural constraint on activity has been bond rates, often referred to as the risk-free rate. These have remained elevated since 2023. Looking back to last year, 10-year gilts stood at 4.63 per cent as fiscal debt and geopolitical uncertainty weighed on the bond market. As we enter 2026, gilts are hovering around 4.4 per cent, with Oxford Economics forecasting they will fall below 4 per cent next year. Longer term, alongside higher interest rates, we are likely to accept a new norm for where gilts will settle. Globally, risk-free rates remain elevated across major economies as rising government borrowing continues to exert pressure. However, this has not proved a significant barrier to improving investment activity in Commercial Real Estate. Our previous analysis shows that over the long term, Commercial Real Estate has consistently outperformed bonds.

The Inflation Dust is finally settling

Inflation, which spiked in 2025 due to policy decisions and supply chain pressures, largely tracked market expectations. Current forecasts suggest inflation will continue to trend towards the Bank of England’s target by mid 2026. This is significant because rising inflation has been a source of uncertainty for property pricing and underwriting assumptions since the start of the cycle. With inflation stabilising, investors can approach deals and property assumptions with greater confidence.

Growth: The Elephant in the Room

Growth remains muted, but not catastrophic. The UK economy is expected to outperform the Eurozone and most G7 peers, albeit as the tallest house on a short street. Crucially, the UK’s reputation for stability held firm in 2025, attracting the highest global cross-border flows. That resilience should continue, especially as geopolitical uncertainty elsewhere persists.

Muted growth will temper exuberance, but it will not derail activity. Investors are increasingly focused on long-term fundamentals rather than short-term volatility, and the UK offers a relatively predictable environment in a world where predictability is scarce.

The UK economy broadly didn’t surprise in 2025, which is a good thing. Geopolitical issues remain in 2026

Looking back to look forward, one thing is clear: despite several macroeconomic bumps along the way, the UK economy largely followed the trajectory many forecasts expected in 2025. This reinforces the perception among global investors that the UK offers a predictable and stable investment environment. That confidence is underscored by the UK once again ranking as the leading market globally for cross-border capital flows. With geopolitical uncertainty continuing to weigh on other economies, the UK is well positioned to remain a safe haven for international capital.

This brings us to one of the last remaining sources of uncertainty: geopolitics. The opening weeks of 2026 feel strikingly similar to 2025, with US policy unpredictability continuing to cast a shadow over capital markets. Yet there are two factors worth noting. First, US-UK relations proved resilient throughout 2025, highlighted by the UK being the first to secure a tariff agreement and followed by announcements of increased US investment. Second, with the next US presidential election not until late 2028, waiting out uncertainty is not a viable strategy. Instead, the UK’s strong position with the US should remain a key advantage, offering opportunities for Commercial Real Estate investment; particularly given that US investors are by far the largest source of global capital into the UK.

Lower oil prices could spur diversification from sovereign wealth funds into Commercial Real Estate. A Reuters poll of 34 analysts sees Brent averaging $61.27 per barrel in 2026, with supply exceeding demand by up to 3.5 million barrels per day over the year; broadly below the levels that prevailed from 2022 to early 2024. We expect to see this shift investment strategies for oil rich nations to diversify investment strategies to CRE as a form of liability matching, return consistency and stability where we saw increasing investment appetite in 2025 from Norway, the UAE and Saudi Arabia- who we have already seen raise US$11.5 billion in 2026 through a dollar bond sale as it taps global markets to help fund huge projects aimed at reducing its economic dependence on oil.

Where Will Activity Happen?

Where will the activity happen? The trend of limited stock coming to market is likely to persist through 2026, but as conditions continue to stabilise, confidence will gradually return. These are arguably the most favourable conditions for Commercial Real Estate investment in several years, supported by improving fundamentals across multiple sectors. Opportunities will not be confined to pure sector allocations; instead, they will emerge selectively, driven by individual asset dynamics and where opportunity arises out of shifting sentiment and demographics. As seen in previous early stages of recovery cycles, astute investors who move early can secure high-quality assets and position themselves for strong long-term performance.

What does this all mean for the year ahead?

As we reach the halfway point of the 2020s, the pandemic’s shadow reminds us that shocks can happen. But for now, stability is returning, a tonic for capital markets and a reason for cautious optimism in 2026. Investors who embrace this environment with a clear-eyed view of risk and opportunity will find that the UK remains one of the most attractive destinations for global capital.