UK investment market overview: Investment Activity Holds Amid Volatility

UK industrial and logistics investment totalled £1.49 billion in Q2 2026, down 8% from £1.62bn in Q1. Despite geopolitical tensions, domestic political uncertainty and elevated gilt and swap rates, investors have continued to transact.

As uncertainty becomes a more permanent feature of the investment landscape, investors appear increasingly willing to deploy capital through periods of disruption rather than adopt a wait-and-see approach. With capital available for deployment and occupier market fundamentals remaining strong, activity has remained resilient.

Average lot sizes moderated to £24.4 million in Q2, down from £28.9m in the previous quarter. However, several significant transactions completed during the quarter, including EQT Real Estate's acquisition of a £199m six-asset logistics portfolio from Tritax Big Box REIT, Hines' £138.6m purchase of Heathrow Logistics Park from Blackstone, and ICG's acquisition of the Springbox Portfolio from ACRE Capital for approximately £200m.

A notable feature of activity this year has been the increase in multi-let industrial estate transactions, reflecting investor appetite for opportunities where value can be unlocked through active asset management.

PRIVATE CAPITAL AND INSTITUTIONAL INVESTORS GAIN MARKET SHARE

Cross-border capital remained the largest source of liquidity, accounting for 46% of the investment total in H1 2026, although its dominance has moderated as domestic capital has become increasingly active.

Institutional investors accounted for 25% of investment activity, the highest proportion since 2019, while private capital represented 24%, the highest share on record. In contrast, the REIT and listed property sector, which accounted for 19% of investment activity in 2025, was largely absent during H1.

This shift reflects increasing confidence in the sector's long-term income characteristics and rental growth prospects, with investors focusing on durable cashflows rather than relying on yield compression to drive returns.

HIGHER DEBT COSTS RESHAPE INVESTMENT STRATEGIES

The higher-for-longer interest rate environment continues to influence both buyer behaviour and pricing.

Investors are increasingly targeting assets offering opportunities for reletting, rental reversion, repositioning or redevelopment. Consequently, activity has shifted towards higher-yielding assets with greater potential for value creation.

In Q2 2026, 39% of transaction volumes involved assets trading at yields of 7.0% or higher, while assets priced at 5.0% or below accounted for just 11% of activity. This contrasts sharply with Q2 2022, when 92% of investment occurred at yields below 5.0% and only 3% traded above 7.0%.

With ten-year gilt yields averaging close to 5% during the quarter, pricing pressure has been most evident in the prime segment of the market. Higher borrowing costs have reduced the pool of leveraged buyers, creating core market opportunities for investors with lower financing requirements and longer investment horizons. Long-term capital is increasingly underwriting acquisitions based on the security and durability of income rather than near-term rental growth assumptions. This is supporting demand for prime assets let on long leases to strong covenants, even where opportunities for active management are limited.

Institutional investors and private capital are particularly well positioned in this environment. Longer holding periods and reduced reliance on short-term value creation strategies allow these investors to acquire high-quality assets with less competition.

Conversely, investors targeting higher returns or operating under shorter investment horizons are increasingly being pushed further up the risk spectrum, where pricing remains more sensitive to changes in financing costs and exit assumptions.

PRICING AND OUTLOOK FOR Q2

Prime industrial yields moved slightly outward during Q2 as higher debt costs and elevated gilt rates continued to place pressure on pricing. Knight Frank's July Yield Guide indicates softening across most market segments, with core assets facing the greatest adjustment.

However, financing markets stabilised towards the end of the quarter. The five-year SONIA swap rate stood at 4.03% at the end of Q2, down from 4.11% at the end of March, while ten-year gilt yields compressed approximately 12 bps to 4.76%.

Looking ahead, both Oxford Economics and Capital Economics expect policy rates to remain broadly stable through 2026 and into 2027. At the same time, stronger-than-expected occupier market performance has prompted upward revisions to rental growth forecasts.

Improving confidence around interest rates, debt costs and rental growth should provide greater clarity on exit pricing, supporting underwriting confidence and creating conditions for liquidity to improve through the remainder of the year.