UK Spring Statement: Capital Markets Signals for Commercial Real Estate

Growth and Inflation: A Narrowing Range of Outcomes

The Office for Budget Responsibility now expects UK GDP to grow by 1.1% in 2026, broadly in line with private‑sector forecasts from Capital Economics at 1.0% and Oxford Economics at 0.9%. While hardly a growth profile to excite, the narrow spread of forecasts is instructive. It points to a shared view that the UK economy will expand modestly, but avoid slipping back into stagnation. The OBR has revised down its near‑term outlook from its October 2025 projection of 1.4% growth in 2026, citing weaker population growth from lower net migration. Beyond this, however, the medium‑term picture is marginally firmer, with growth forecast at 1.6% in both 2027 and 2028, before settling at 1.5% in 2029 and 2030.

Inflation forecasts show a similar convergence. The OBR expects CPI to average 2.3%, compared with 2.52% from Oxford Economics and a slightly more benign 2.1% from Capital Economics. The variance is narrow, and the message consistent: inflation is easing and hovering close to target.

Despite weaker population growth this year, Oxford Economics still expects the UK to maintain positive working‑age population growth over the long term - unlike the EU and Japan, where it is projected to fall.

The Chancellor’s fiscal headroom has improved slightly, rising to £23.6bn (from £21.7bn), helped by lower gilt yields and stronger equity markets offsetting the downgrade to 2026 GDP growth- which perhaps is providing a runway for spending initiatives come Budget time in 2026.

For capital markets, this matters less for the decimal points and more for confidence. Lower inflation volatility reduces uncertainty around gilt yields and underpins pricing assumptions across real assets.

Fiscal Stance: Predictability Over Stimulus

The Statement offered little in the way of fresh fiscal impulse. Instead, it reinforced a commitment to fiscal discipline and debt control. From a markets perspective, this supports the view that the UK is unlikely to generate negative surprises in sovereign funding or policy credibility, even if it limits near‑term growth upside. Gilt markets broadly reflect this calm, with improving fundamentals continuing to help anchor real estate discount rates after two years of adjustment.

The Debt Management Office (DMO) has announced plans to sell £252bn of gilts in the year to March 2027, close to investors’ expectations. That compares with roughly £304bn this year and the first annual fall in 4 years and the lowest level in 3. After an extended period of heavy gilt supply, a lower issuance should relieve some pressure on the market and help contain borrowing costs, providing a more supportive rates backdrop for UK CRE.

Implications for Capital Markets and CRE

For Commercial Real Estate, the implications are quietly constructive. With inflation easing and interest rates no longer rising, the market is shifting from repricing to re‑engagement. Prime yields are showing signs of stabilisation, and the gap between buyer and seller expectations continues to narrow.

Transaction volumes remain subdued relative to historical norms, but momentum is building. A strong finish to 2025 saw one of the largest quarterly volumes of deals on record, and there are growing signs that this uplift is sustainable. Some of this reflects longer execution timelines in the current environment rather than a lack of intent. Capital is therefore becoming increasingly selective rather than absent. Underwriting is once again centred on income durability and rental growth, rather than yield compression. Against a volatile global backdrop, relative stability is proving an attractive proposition for international investors. Improving liquidity and strengthening fundamentals are expected to continue positioning UK Commercial Real Estate as a relative safe haven and a compelling destination for capital deployment.

Bottom Line

The Spring Statement did not change the narrative, but it reinforced it. Growth is modest, inflation is easing, and domestic policy risk appears contained. For UK Commercial Real Estate, this provides a firmer platform for measured capital deployment through 2026, driven more by income and fundamentals than macro speculation.