All's well that ends well: rollercoaster 2025 sets up industry for rejuvenated 2026

A year that began with high hopes for strong UK real estate activity had, by the time of the Mipim real estate conference in March, already become bogged down by concerns over global tariffs and economic uncertainty. It has only really began to show signs of sparking back into life after the government's much-delayed November Budget.

But optimism is returning. As 2025 draws to a close, major deals are getting over the line in an ever-wider array of sectors and locations. That suggests that over the last 12 months, the market has become more comfortable with the dramatic changes that had stymied activity, particularly in offices and retail.

CoStar's UK analysts are now predicting that commercial transactions are on track to broadly match last year's £55 billion. By mid-December, Savills was forecasting £50 billion of trades, thanks to "continued uncertainty", but said 2026 should see at least a 10% increase to £55 billion.

Savills was feeling confident enough to call the UK commercial real estate investment market for 2025 by mid-October, saying combined volumes for the office and industrial sectors would exceed 2024’s. As of the end of September, it had tracked £7 billion and £6.2 billion of investment deals in the industrial and office sectors respectively, against 2024 full-year volumes of approximately £10.8 billion and £9.9 billion. Adding in the volume it had as under offer or at an advanced stage, Savills anticipated the final quarter would be enough to see last year's numbers surpassed.

That still does not translate to a bumper year, and it would be wrong to suggest it is not a tough market. But in recent weeks, CoStar News has revealed that Hayfin has completed the largest central London office transaction in three years, buying the "Can of Ham" for around £335 million, and that Norway's sovereign wealth fund Norges is in talks to buy the Fruit and Wool Exchange in the City for £300 million.

CoStar News also revealed that Frasers, the dynamic retailer that owns Sports Direct and Flannels, had spent close to £500 million on retail real estate, at Braehead shopping centre in Glasgow and the Swindon Designer Outlet Centre.

The depth of activity in terms of locations and in different sectors is an important sign of the market's recovery.

JPMorgan and Visa's massive post-Budget commitments to London's rebounding Canary Wharf district has been a standout story about an improving submarket, while occupiers in general have continued to pay strong rents when choosing to move to prime new space.

There is an increased appetite for lending too, which is resulting in major new financings including Sumitomo Bank backing ICG Real Estate's acquisition of a portfolio of UK and Europe Lidl stores for €203.5 million with an €120 million loan at 60% loan to value, Deka entering talks to back Hines' circa £185 million acquisition of Worship Square, and Hayfin financing the Can of Ham with circa £200 million from Santander and CaixaBank.

There has clearly been far more to 2025 than meets the eye. So what were the standout trends and stories for the UK's commercial real estate leaders?

Cameron Ramsey, EMEA and UK capital markets research and strategy director at JLL, believes the year delivered the "essential stability and liquidity needed" in the market. "2026 is poised to capitalise on this," he forecasts, "driving a more active and dynamic commercial real estate environment through diverse capital inflows and a strategic focus on creating and enhancing value across all asset classes."

Arvi Luoma, a senior managing director at Cain International, says that 12 months ago it felt as if the trough had been reached and everyone was a bit more optimistic. "But then in Q2 and Q3 with a lot of chaos around the [US] tariff conversations, that changed. I think there is evidence the tariffs had a more subdued impact on the economy than people had been suggesting, but starting to place bets on factors that are entirely out of your control is not what we do as a house – we are looking at sectors we fundamentally believe in on a long-term basis.

He adds that the corporate world is even more keen to see less volatility and therefore it affected the occupier base which is what drives real estate. "But real estate is fundamentally an industry for optimists and it does feel as if it is now a day closer to the good old times."

Charles Ferguson-Davie, chief executive and chief executive at Moorfield Group, says key to understanding 2025 is the fact that investors remained highly selective. The UK is still attracting capital, but investors are focusing on best-in-class assets, sector-specific allocations where there is a long-term structural growth story or a discounted entry opportunity.

"We have seen a recovery of interest in prime London offices, and continued interest in residential for rent – encompassing multifamily, single family and student accommodation – and logistics, where inflation-linkage, needs-based demand drivers and supply constraints represent long-term structural drivers. There is also interest in situations where high debt costs, limited capital availability and the presence of motivated sellers with liquidity pressures have presented attractive opportunities."

Pricing has stabilised. Across the UK, Savills says the prime average yield remained stable for seven months from March to September 5.75%. Yields in 10 sub-sectors had remained flat for more than a year, while four sub-sectors – offices in the City of London, leisure parks, food stores and London core leased hotels – had all seen downwards pressure on yields.

Colin Thomasson, CBRE's head of UK investment properties, described 2025 as a year of two halves: "The first half was more difficult than we anticipated for a number of reasons largely out of our control. We ended the last quarter of 2024 with a strong degree of optimism, believing that the change of administration in the US would bring clarity and benefits to commercial real estate sectors globally and the UK. But then came the conversation around tariffs, liberation day, and ultimately, rates stayed higher for longer. That led to market uncertainty and volumes were not transacting at levels we had anticipated."

He says that dynamic changed moving into the second half. "There has been a general understanding of where the market is, tariff announcements have played through, the geopolitical environment has settled somewhat and now we are starting to see rate cuts. There is a rising confidence and that has resulted in higher levels of transactional activity and we are recovering some of the ground lost in the first half of the year."

Thomasson says his company's house view is that volumes by the end of the third quarter were down around 12% but the market is recovering well in the fourth quarter. "I doubt overall volumes in 2025 will be up on 2024 but I do not think it will be materially down."

James Seppala, Blackstone's European chairman, says the private equity giant believes the recovery in real estate in the region is gaining momentum and, with supportive debt capital markets, this should continue through 2026.

"We have made clear our intention to invest in $500 billion in assets in Europe over the next decade. In real estate, this means targeting assets aligned with powerful structural trends." He describes the trends as e-commerce growth, more leisure spend, and the digital economy’s demand for data and computing capacity.

"We expect some of these priorities will come to fruition in 2026, and we are particularly excited about the launch of Proxity, our newest European last-mile logistics platform, and reinforcing our position as a leading investor in data centres across the continent. Backed by healthy cash flow growth, increasingly liquidity and reduced new supply, we believe we are well placed to capture opportunities and invest where we see enduring demand drivers.”

Unquestionably, the living and industrial sectors remain uppermost in investors' minds.

The living sector saw a number of mega-deals, and the year ended with global capital targeting UK housing and the wider living sector. Transactions included the sale of the PRS REIT portfolio for £1.1 billion, M&G announcing a tie-up with Korea's National Pension Service to invest £1.1 billion in housing and AustralianSuper's UK living sector debut by investing in student homes.

Healthcare had a strong year with Knight Frank reporting in November that the UK is on track to complete £12 billion of property transactions in 2025. That would be a record for annual investment into the sector, and is more than treble the long-term yearly average, according to the adviser.

It has been driven by a significant increase in appetite from cross-border family offices, insurance firms and US REITs attracted by the sector’s countercyclical characteristics. Towards the end of the year Welltower, the American healthcare real estate giant, completed what is thought to be the world's largest care home transaction, buying the portfolio of Barchester in a deal valued at £5.2 billion.

Kenneth Mackenzie, chief executive at Target Healthcare REIT's fund manager, says the care home sector has continued to evolve this year around growing demand for high-quality, purpose-built accommodation. "Modern homes with en-suite wet rooms, strong ESG credentials and net zero ambitions are increasingly expected by operators and residents alike. Recent market activity highlights this trend."

CBRE's Thomasson says healthcare and housing will continue to be highly sought-after next year.

"There is huge aggregation and consolidation in healthcare, with US investors leading the way. The housing space has been busy this year too, focused primarily on single family. The urban BTR sector has been more difficult, especially on the development funding side."

Jay Kwan, managing director, head of Europe, international real estate, at Canadian investment giant QuadReal, says the group's "permanent and flexible capital" is allowing it to stay "relevant" in its high conviction sectors at any point of the cycle, and that means targeting sectors where it sees significant scope for sustainable growth, such as student living, residential and industrial. "In 2025 these segments remained highly attractive, driven by favourable supply and demand dynamics and strong fundamentals."

Rick de Blaby, the outgoing chief executive at Get Living, says 2025 has seen the most significant change to the private residential rental sector in a generation, with the Renters’ Right Act. "The Act broadly aligns with key build-to-rent principles, enhancing renter security and providing professionally managed tenancies, but in practice will inevitably create new unintended consequences."

De Blaby says there remains huge scope for the build-to-rent sector, backed by institutional global capital, to play its role in providing more homes in the UK in the long term.

John Gravett, CEO at Cluttons, says 2025 began with optimism in the residential market amid falling base rates, but mid-year speculation around property taxes that might be introduced at the Budget created uncertainty, particularly in London.

"This stalled momentum and left many buyers and sellers waiting for clarity. As we move into 2026, there are signs that the certainty created by the Budget has been enough to unlock some pent-up activity in the sales market, with more rate cuts to come. This market will be one to watch. In lettings, the focus will be on how the landlord community responds to the implementation of the Renters Rights Act from May 2026 and tax rises in 2027. Both pose challenges, but landlords now have the clarity needed to plan and invest. "

Jessica Hardman, chief executive of Aboria Capital, describes a topsy-turvy year for student housing book-ended by policy turbulence across global higher education. "The year began with President Trump’s inauguration and the subsequent restrictions on international student inflows. This signalled to many prospective students that they were less welcome in the US – positioning the UK, by contrast, as a relative haven of stability. This dynamic was reflected in strong domestic and international demand for September 2025 admissions across the UK’s leading universities."

Hardman says the year closed with further uncertainty as the UK Budget introduced a consultation on the proposed international student levy.

"We view this as an opportunity for institutional PBSA investors and operators to deepen their support for universities through high-quality, privately delivered accommodation."

ActivumSG UK managing director James de Lusignan says the UK's student housing sector is particularly a compelling investment as future growth is underpinned by the undersupply of student beds relative to anticipated demand. "A large majority of existing PBSA stock in the UK was delivered pre-2012 and will need upgrading while adhering to modern student and investor expectations."

By the beginning of December, industrial and logistics volumes were already on par with the £7.8 billion invested throughout 2024, according to Christopher Mizen, an associate at Newmark. He adds that 2025 was set to have the third highest volume on record, only eclipsed by 2021 and 2022.

Mizen says that with some single-asset sales proving more challenging this year, corporate activity and portfolio trades have carried much of the momentum.

"While I and L portfolios typically contribute 35%-50% of volumes in any given year, 2025 has already seen 60% of activity concentrated in this area of the market – only in 2021 were portfolios quite so dominant, according to Newmark Research."

A surge of M&As, recapitalisations and more intricate transaction structures, rather than direct portfolio trades, have become the main driving force behind investment in UK sheds. "It accounts for a staggering 76% of completed portfolio volumes year-to-date."

James Craddock, UK managing director, Segro, the UK's largest REIT, says occupier demand for space across the UK and Europe has picked up in the latter half of 2025.

"We have seen this through higher levels of enquiries on both our new and existing space, but what has been particularly promising has been the increased prelet activity across our largest Continental European markets. Occupiers have a cautious but clear expansionary appetite, and are prioritising prime, modern assets with best-in-class specifications, excellent connectivity and robust power supply."

Craddock says the demand is being supported by long-term structural trends.

"Growing resident populations in Europe’s largest cities require an ever-increasing array of goods and services delivered at speed, requiring businesses to locate their operations within easy reach of end users. Supply chain diversification has emerged as an important factor in decision-making, with global occupiers looking to reduce reliance on single markets and to enhance operational resilience."

He says the data centre market continues to grow too as businesses increasingly rely on secure, high-quality infrastructure to support cloud services, AI and data heavy processes.

“This sustained growth is shaping the future of industrial and logistics space, with power availability, connectivity and building specification key considerations. Technology is also driving automation, with AI driven tools in planning, inventory management and forecasting expected to cut operating costs and driving clear demand for spaces that are both flexible and resilient, capable of supporting the dual requirements of AI enabled systems and human labour.”

Andrew Coombs, chief executive at listed UK and Germany investor Sirius, says 2025 was a year in which defence spending became a driving force in Europe’s industrial real estate markets.

"Across NATO, governments have committed to structurally higher investment in response to rising geopolitical tension and the shift toward multi-dimensional warfare, where drones, satellites, cyber capabilities and advanced logistics now complement traditional land, sea and air assets. This transformation requires extensive manufacturing, storage and distribution infrastructure – precisely the type of flexible industrial space Sirius is well positioned to provide.

"In the UK, the political volatility we saw coming into the Autumn Budget tempered market sentiment, and we expect this to continue until post-local election clarity emerges next June. Even so, demand fundamentals remain strong, with increased defence spending alone having the potential to drive close to £1 billion annually in UK industrial rents over time."

Shiraz Jiwa, founder and CEO of the Valesco Group, believes the beds, sheds and meds sectors tapped the brakes slightly during the year with more attention shifting towards offices and retail, where supply, demand dynamics and rental growth prospects have strengthened. "As 2025 closes, investors appear more comfortable with uncertainty and with where rates sit, pointing to 2026 transaction levels improving versus 2025."

This may be the year the UK offices sector sees as a turning point, when the uncertainty created by working from home during the Covid-19 lockdowns settled and sentiment began to improve.

Thomasson says confidence is returning to central London and regional offices. "In London, Manchester and in Birmingham there are deals occurring and you are starting to see that in higher transactional volumes."

For occupiers, a continuing lack of supply of the in-demand prime city centre offices is driving record rents. That has begun to – at last – feed into bigger ticket sales. At the ExpoReal conference in October, CoStar News reported that there were 12 central London offices under offer at prices over £100 million with 14 having already traded in 2025, compared with 12 in the whole of 2024.

It's been tougher for offices elsewhere but at this rarefied end there have been winners.

Rob Buchele, Savills, director, London commercial development, says there has been an undoubted upturn as the year has come to a close. "It is busier for development space and value-add. That said, everything is taking a long time to happen but the evidence for land values is starting to emerge with Row 1 on the Southbank, for instance, trading at £175 per square foot. Plus, we are seeing challenges in terms of construction viability beginning to ease partly helped by the debt markets being active across the board.”

Savills' head of London development Ollie Fursdon agrees that the "long drawn out rebasing of pricing" seems to be settling. "Volumes are still down, but in general the gap between vendor and buyer aspirations is narrower than it has been. There is greater stability on costs and more accretive debt available.

"We have also started seeing bigger capital market trades, which is starting to calm nerves around exit liquidity. Next year should be genuinely positive."

Buchele says the type of developers and buyers has changed significantly. "It was merchant property developers and REITs and now it is development managers with funding partners or REITs looking for sovereign wealth partners."

Oliver Knight, head of workplace at Landsec, says there has been a clear flight to quality in the office market again, with demand for high-quality, sustainable offices in amenity-rich locations continuing to grow. "That picture is reflected in occupancy and rentals across our portfolio, with both continuing to climb through the year."

Cushman & Wakefield tracks all office moves over 5,000 square feet in the South East and Greater London, and in an exclusive update says there were 94 from the first quarter to the end of the third quarter of 2025 compared with 89 during all of last year.

The preliminary findings from this year are that, by number, 68% of movers expanded compared with 49% in 2024. By volume, there has been 16% net absorption of space (that is square-foot growth in footprint) overall, versus a net contraction of 33% in 2024. 

Charles Dady, international partner, head of national office leasing, UK, said: “The reversal from contraction to net absorption of space this year is a very welcome and positive sign for the market in 2026.

"The data confirms that a growing number of occupiers who downsized post-Covid overcorrected and now need more space. We see the two main drivers for this being the need to provide the right quality of environment now required by staff and an increasing push/directive to get people back into the office."

Tristram Gethin at Quadrant has had a particularly successful year at YY in Canary Wharf and OSMO in Battersea. "We are much more bullish about Canary Wharf with rents being secured at over £60 per square foot. The offer down there has improved with so much new F&B and retail. It’s a very changed place and it feels both busy and vibrant. Similarly at Osmo we are under offer on the top floor at a rent in the £70s per square foot and due to sign on the first and second floor to a coworking group any day. We are getting better rents than we underwrote though it has been taking time to let up. And we have other deals in the pipeline."

Fons van Dorst, executive managing director of developer Edge, says the trend in sustainability has been to reflect and build smarter. "The trend was that it blew up with everyone adding every accreditation they could and we were very early adopters. But now what we are really focused on is the carbon numbers, the carbon that is actually used in operation and development as that is what really matters.

"In terms of amenity there was a period when everyone was adding barber shops and swimming pools and God knows what. It is good of course. But there is more focus I think now on what I call 'responsible building' or adding what occupiers need. At our Liverpool Street building there is no gym as there are many nearby and so it is not necessary, and equally we do not want to cannibalise the offer of nearby gym operators."

Jon Cochrane, director, asset management and head of sustainability at Feldberg Capital, says it was all about being close to transport hubs in 2025. "Occupiers prioritised micro-locations a stone’s throw from main stations, and proximity to transport hubs will remain critical for businesses in 2026. The overall experience a location offers is also a key part of the package now, with workspace only one part. With most of us working under flexible arrangements, offices surrounded by vibrant F&B and retail in areas like Liverpool Street, Charlotte Street and Soho look set to perform well. Sustainability requirements will continue to intensify beyond EPC ratings, with companies of all sizes wanting to see real time energy performance data and strategies for upgrades reflecting their corporate sustainability targets, influencing both new and ongoing leases.”

Joe Binns, head of investment at Stanhope, says London’s office market continued to diverge in the year, with true Grade A assets outperforming by a wide margin. "While Grade A-minus spaces still faced ongoing challenges, the best buildings in prime City locations have leased earlier and faster, often pre-completion, while achieving new record rents."

Binns says that with future-proofed office assets set to remain scarce for the next three to four years, occupiers are beginning their searches significantly earlier, in some instances up to a decade ahead of lease expiries.

"The investment market sentiment is also improving as pricing stabilises, and confidence is growing around the current window of opportunity before broader valuation recovery, supported by expectations of upcoming rate cuts.”

Tim Allibone, head of portfolio management - St James's, The Crown Estate, agrees that 2025 office markets were defined by a renewed focus on quality.

"We’ve seen prime West End sub-markets such as St James’s and Mayfair continue to set the pace, setting strong headline rents. That surge in prime rents reflects a clear push from occupiers towards well-located Grade A space and the scarcity of truly best-in-class buildings. Investor appetite has also rebounded, with the return of larger lot-size deals signalling greater investor confidence in the resilience of core London markets."

Jiwa of Valesco says 2025 ultimately delivered a tangible improvement in market sentiment though there was lower transaction volume than many anticipated.

"For those who have been through multiple cycles, the muted activity was no surprise. A key challenge was inertia among a generation of investors who have only ever known the low-rate conditions of the past 10–15 years, viewing today’s landscape as an anomaly. By contrast, those with two or three decades of experience see the last decade as the outlier and the current rate environment as the norm. Even so, sentiment towards offices clearly improved throughout 2025, even if volumes lagged till post-summer. Strong rental growth across European gateway cities and the growing evidence of a bifurcation thesis playing out brought serious capital meaningfully back into the sector for the best quality assets. Across the market, there is now a greater degree of differentiation between offices; no two are the same, and a more discerning approach has taken hold."

Guy Thomas, head of commercial leasing at Lendlease, says supply is the important factor. "This is creating a pressure-cooker dynamic where the best space gets bid up and substandard space gets left behind." He says that dynamic is visible in the UK’s major regional cities, where "constrained cores and modest pipelines give well-planned regeneration districts greater scope to support demand".

"Their ability to provide exceptional place making, flexibility and volume alongside established centres is likely to be a defining trend in the next cycle.”

Dan Scanlon, president at Brookfield Properties, says the past year has "shown, once again, the resilience and adaptability of the London office market – particularly in the City and West End core, which has witnessed above-trend occupier demand, take-up and strong rental growth".

Scanlon adds: "Occupiers continue to prioritise well-designed, well-located workplaces and experienced owners with whom they can partner for long-term flexibility, growth and quality of service. We expect this to continue."

Louise Ioannou, head of workspace UK, HB Reavis, says 2025 saw offices evolve into "experience-driven destinations, where design is shaped around how people work and what supports workplace culture".

She says occupiers will continue to gravitate towards workplaces that deliver genuine experience and help shape organisational culture.

The once-beleaguered bricks-and-mortar retail sector is fighting back in pretty much all sub-sectors, and investors are taking notice.

In November, CBRE reported that by the end of the third quarter, UK retail investment had totalled £5 billion, already surpassing full-year 2024. High Street retail (representing 21% of the total), was already above the total combined volumes for the past two years and on track to reach the highest annual capital inflow since 2017.

That is being driven by a resilient occupier market, strong footfall and rebased rents in many schemes, as developers have been quick to repurpose centres to attract shoppers – and leisure visitors. CBRE reported that rental growth continued across all sub-sectors in the third quarter, with retail parks registering the highest increase 7% year on year. Vacancy has continued to decrease in all sub-sectors.

According to exclusive research provided by JLL, the shopping centre market is on track to see 23 deals complete, totalling £1.49 billion. It also has visibility on 14 deals that are under offer and set to trade at £925 million and another nine deals seeking around £200 million in total.

Nick Hart, head of strategic transactions – UK capital markets, says everything now points to 2026 being a very strong year for high quality shopping-centre assets. "With the Budget now behind us we are likely to see two, maybe three more easings of interest rates in 2026. 2026 is poised to be a record year of activity in the sector with volumes likely to surpass those achieved since 2016."

Kelly Cleveland, head of real estate and investment at British Land, describes 2025 as a pivotal year for retail property, with the sector rebounding strongly from the pandemic.

"Success in this recovery has required a strategic approach from operators and investors as consumer and retailer expectations evolve, reshaping formats and driving returns."

Cleveland says retail parks have emerged as clear winners, offering resilience and adaptability.

"Supported by healthy demand, limited supply and affordable rents, they’ve attracted significant investor interest. CBRE reports investment rose 32% to £1.5 billion in the first half of 2025, as retailers competed for space, pushing rents higher and drawing domestic and global capital. For retailers, the appeal is clear: efficiency, flexibility, easy access, and free parking."

Cleveland says that with no new supply for a decade and restrictive planning policy, investor appetite is here to stay. "Leading parks are diversifying, adding services like veterinary practices and healthcare, reinforcing their role in omnichannel strategies.”

The latest STR UK hotel forecasts indicate moderate revenue per available room growth in 2026. In December, it had marginally upgraded the full-year 2025 forecasts, following a better-than-expected third quarter,. Regional UK hotels are expected to end the year on a more positive note than those in London.

Savills reports that by the end of the third quarter UK hotel investment volumes totalled £3.01 billion, down 28.6% year-on-year due to fewer portfolio deals. The star of the show was single-asset transactions which have surged, up 33.1% year on year and 38.3% above the 10-year average, with strong activity in London and some regional markets. Savills says this signals resilient investor appetite and it expects to see an improving transaction volume going into 2026.

The UK hotels sector has had a dynamic 2025 as operators and landlords respond to a range of trends, covered in the annual Knight Frank hotels roundtable chaired by CoStar News. Click here to read more.

Oliver Winter, founder and CEO of A&O Hostels, says 2025 marked a turning of the tide for the hostel sector. His company opened 1,000 rooms across four new cities. "Once perceived as a fragmented market, the sector is rapidly maturing into a recognised sub-sector of the leisure and hospitality industry, one that is not only resilient, but increasingly thriving and gaining relevance. Resilient growth, coupled with favourable demographic tailwinds, has driven increased appetite from LPs who increasingly view hostels as institutional-quality assets."

Michael Volkert, the new CEO of Olympia Estates, the huge leisure-led redevelopment of the exhibition centres in Kensington, says 2025 has been a challenging year for cultural and leisure destinations as a whole with many operators facing increasing pressure from rising costs and shifting consumer habits. "It’s been a year that’s tested resilience across the sector here in London, across the UK and globally."

He says, in that environment, destinations that offer genuine quality and experience are more important than ever.

“Olympia’s transformation speaks directly to that. As Olympia’s new public venues start opening next year, the destination will bring together world-class culture, entertainment, workspace and hospitality, creating a place that delivers real inspiration for consumers and businesses alike."

Harriett Renny, lease director at Battersea Power Station, says in 2025 it has been important to understand the value of an integrated ecosystem, where retail, offices and residential coexist. "Each asset supports the other, from consumer footfall driving retail sales to amenities conducive to happy employees and residents."

Making the numbers stack up for development has remained a significant issue throughout 2025 but there are signs of that changing in 2026.

CBRE's Thomasson says: "There are many factors preventing development funding from stacking, including rising build costs, higher borrowing rates, softer yields and Building Safety Act challenges, and that will continue to echo through the market in 2026.

"Looking ahead to 2026, I think the market generally will improve across sectors, as the lack of development constrains supply and demand remains robust. We should see continuing rental growth driving relatively good total returns. From an offices perspective, it’s clear that there is more to the market than just best-in-class Grade A stock. There is a significant segment of occupiers who do not need a fully amenitised building or may prefer something more cost-effective, and I expect to see investors widen their interest beyond the super Grade A assets."

In the housing market Get Living's de Blaby says the challenges of development viability continue. "The statistics for new home delivery are stark, most acutely apparent in London. We urge the government to address the barriers directly, not just with initiatives around planning, building safety regulation, construction capacity and infrastructure, but also by resourcing central and local government, as well as the courts, to handle a higher prospective pipeline of activity.“

Tom Goodall, chief executive director at Related Argent, describes 2025 as a transitional year for his business as it focuses on housing in London. "Viability pressures and delivery challenges have certainly not disappeared, but the tone has shifted. Government has shown a clearer appetite to work with industry and the Greater London Authority's updated guidance on affordable housing requirements – alongside other measures designed to stimulate housing delivery – is positive.”

CBRE's Thomasson describes a focus on "capital efficiency" in real estate as another key trend in 2025.

"Capital efficiency runs through so much of what we are doing – particularly in relation to how our clients are raising debt and equity capital, finding liquidity or seeking to recapitalise existing portfolios. Our clients are seeking strategic partnership rather than simply transactional advice and we are integrating our sector expertise with holistic capital advice to create liquidity and capital efficient solutions. A creative approach is delivering results and will be increasingly important for investors in 2026."

The debt market remains highly competitive, for the right product. New lending for commercial real estate in the first half of 2025 was 33% up on the same period last year, according to the most recent report from the Bayes Business School.

Total new lending reached £22.3 billion while secondary loan market syndication surpassed £10 billion almost matching the full-year total for 2024. The problem is the investment market is still lagging, with 74% of new lending reportedly for refinancing. However, there is hope that the market is improving, the report says.

JLL's Cameron says abundant debt liquidity will continue to underpin transactions in 2026.

Speaking before the 18 December decision, he says: "Further interest rate cuts in the UK – with some economists forecasting up to 100-150 basis points of further cuts – and continued stability at the current equilibrium level in the eurozone, will make financing ever more attractive, significantly boosting overall sentiment and activity across all commercial property sectors. This environment will also facilitate a return of larger commercial property deals, with London offices, for example, expecting to see a doubling of £100 million-plus transactions, signalling growing investor appetite for scale."

Naveen Vijh, partner and practice group leader – real estate finance UK at law firm BCLP, describes 2025 as a "decent bridge to 2026". 

"Ignoring black swan events, 2026 looks like it will be the beginning of a prolonged growth period in all finance sectors from real estate to datacentres and from logistics to large scale residential developments."

He added: "But in 2026 the scale of what needs to be done to make up for years of underactivity will mean we will see the re-emergence of large scale financial distribution products such as securitisations, CMBS, warehousing lines, leverage finance and structured derivate products.  We are already seeing it happen and in 2026 the pedal hits the floor.”

Luoma of Cain International says that what stood out in 2025 was the strength of the financing market.

"The debt market is extremely attractive - you are borrowing at attractive loan to value levels, margins and returns and that will help drive the equity market in 2026. That was the major transition in the year. We are a large investment firm with billions of loans on various projects. There is creative debt, attractive LTV and margins, and strong competition."

Artificial intelligence, and the need to embrace it or be left behind, has been as talked about in real estate as every other industry in 2025.

Faisal Butt, managing partner, at Pi Labs, a built-environment venture capital firm, says AI is transforming real estate across investment, development, leasing and asset management.

"Early adopters are already seeing measurable efficiency and cost gains, while those slow to act risk falling behind in profitability. Tools deployed by Aldar and King's Cross, as well as increased M&A activity in the sector, illustrate the speed of adoption, with thousands of corporates engaging AI models within days.

"Most real estate AI is still at the co-pilot stage, with humans finding the most effective ways to collaborate with AI, but the trajectory points toward agentic AI. For VC funds like Pi Labs, this signals a compelling investment window: workflow-specific, data-driven AI solutions with clear ROI and scalability are set to attract capital and acquisition interest.”

Alan Pepper, chief executive of Orega, says that there is no doubt that the UK flex market is continuing to evolve and landlords are now embracing joint ventures with operators as a key part of their strategy.

"According to the latest CBRE report there will be 50 million square feet of flexible offices in London alone by 2030 – accounting for 20% of the entire market in the capital, up from 12% today."

Pepper says fundamentals, particularly location and amenity, are probably more important than ever.

"Secondly, the trend for larger corporates either taking or significantly scaling up flex space has also continued, often coming out of conventional leasehold solutions."

Finally, Pepper says the use of flex has continued to increase in the regions where major corporates have started to base local operations to take advantage of the shorter terms.

He also sees managed office space, as a segment of the flex market, growing in popularity, primarily in London.

"Finally, after a lull last summer more landlords are now looking at whether flex can be delivered in their buildings and how they go about arranging that – whether by partnering with an operator like us to deal with the operational intensity of running a flex operation or by building that capability themselves."

James Sheppard, international head of strategy and business development at Kadans Science Partner, says that caution in the science and innovation sector remains a defining factor for many developers and investors as they navigate short-term headwinds.

"While the long-term fundamentals of the industry are undeniably strong, the near-term environment has continued to challenge some decision-making.

“At the same time, we’ve seen a clear diversification in tenant occupier bases looking for highly technical space. For example, engineering firms, advanced manufacturing, AI and high-tech systems businesses are in search of space with significant power capacity and specialist infrastructure. Driven by a war for talent, companies that historically operated in suburban or edge-of-town locations, such as semiconductor businesses, are now increasingly prioritising city-centre environments to secure the best people.

“Despite its challenges, 2025 is ending on a note of optimism. We’re seeing more tenants come forward across Europe and committing to space, signalling renewed confidence in the sector.”

Hugo Llewelyn, chief executive, Newcore Capital, says capital markets are still recovering from the steep reversal in monetary policy that came in 2022 and that income returns will be the primary driver of performance and real estate's ability to act as an inflation hedge.

Llewellyn believes that while near-term inflation is set to stabilise, markets are still underpricing another inflationary shock, driven by climate change, geopolitics and ageing populations, either in isolation or combination. Essential needs-based real estate sectors that can deliver reliable long-term income, particularly social infrastructure and housing, will be best placed.

John Gravett of Cluttons says that across both residential and commercial, "digital and energy infrastructure is critical".

"Properties must integrate green energy as well as [internet of things] solutions to meet the expectations of residents, occupiers, and the wider public. These factors will define competitiveness in 2026 and beyond.”

Sebastien Ricard, board director at architect WilkinsonEyre, says that the sector is awaiting the government’s response to the Energy Performance Certificate consultation, which will shape retrofit and commercial asset strategy throughout 2026.

He says that with nearly 83% of commercial stock at risk of becoming unlettable, the priority for 2026 has to be about "pairing smarter regulation with the manufacturing, skills and supply-chain capability to deliver it".

Hannah Marshall, chief investment officer – UK direct real estate strategies, CBRE Investment Management, believes the UK economy is showing resilience, supported by moderating inflation and expectations that interest rates will stay broadly neutral through the year. That said, she says structural cost pressures and geopolitical uncertainty will continue to shape investor sentiment.

“One theme I expect to gather pace in 2026 is fund consolidation, particularly in the living sector. Fragmentation limits scale, which impacts diversification, deal sourcing, and governance. Larger platforms offer operational efficiencies, deal sourcing and diversification benefits and those with pan-European reach are best placed to deliver superior outcomes.”

Jonathan Bayfield, director, real estate research and strategy at Aviva Investors, says that following the UK market’s low point in the final quarter of 2023, "structural thematics" like urbanisation, demographics and the energy transition have shaped its private markets' investment strategy.

"Since the market peak in Q2 2022 until Q3 2025, we have deployed over £4.4 billion across the real estate capital stack in UK and Europe, targeting sectors where long-term demand was most resilient and we felt risk was mispriced. In particular that has focused on PBSA, life sciences, single and multi-family housing, as well as urban logistics."

Bayfield also sees the real estate cycle as restarting and sees a "window to invest with renewed entrepreneurialism in 2026–27".

Jennet Siebrits, head of research at Ringley Group, says she started 2025 feeling upbeat. "My early confidence evaporated fast. Politically, the mood stayed pretty restrained and muted: the new government was taking its time to bed in, public services under real strain, and endless arguments about what the country can actually afford.  As a result, there was a clear feeling we weren’t getting anywhere fast."

Economically, Siebrits says the UK never really found its footing and that set the tone for the property markets. "Investment volumes are currently on target to be around 20% below the long-term average levels."

Savills says after a year of uncertainty, the outlook is more stable than it was at the beginning of 2025.

In a December report the adviser predicted returning confidence and activity in 2026."Businesses and investors should be more capable of making balanced decisions, and there should be growing recognition internationally that the UK market is in a comparatively strong position compared to many of its peers."

Victoria Towers, Head of Commercial Real Estate at Forsters, describes 2025 as a "mixed bag in its entirety".

“As ever, there will always be winners and losers across the different sectors at any point in the cycle. In the industrials sector, we continue to see steady demand for mid box and big box development, painting a more positive picture for 2026 despite ongoing occupier challenges around labour costs, energy prices and economic uncertainty. As we know, datacentres are the darling of the government’s infrastructure plans and as a result we are seeing a rise in interest from both a development and investment perspective. Structural demographic tailwinds and a re-invigorated debt market continue to propel investment into the later living sector. And it’s also good news for PBSA (core & core plus) and hotels, following a sharp rise in interest from overseas investors, in part driven by the selling down of UK pension funds.

“Parts of the office sector have continued to face challenges around obsolescence, whilst at the other end of the market it will be interesting to see how much investors and occupiers will now pay for prime, Grade-A tech-enabled space given an anticipated lack of future supply. We’ve also seen a rise in new joint ventures, as institutional and overseas investors look to utilise on the ground expertise to move capital in a more rapid and agile way, and we expect these opportunities to continue at pace as we head into 2026.”

Siebrets agrees that 2025 was a moment of pause before better times. "Looking back, 2025 won’t go down as a standout year for Britain, more of a holding pattern, a transitional moment where everyone was waiting for a clearer direction. Not a good year or a bad one, just a quietly inconsequential pause before whatever comes next."

CoStar News would like to thank all of our readers for their contributions and interest this year and to wish everyone a Happy Christmas.