Savills has raised its outlook for the average total return for the next five years for UK real estate in its 2026 cross-sector outlook to 7.8% a year from 7.4% a year in 2025.
The international real estate adviser says that the UK’s outlook is more stable than it was a year ago and says commercial real estate volumes next year are therefore likely to rise 10% from a projected £50 billion in 2025 to £55 billion.
In its annual cross-sector forecasts, covering the commercial, residential and rural sectors, Savills says that the importance of income in delivering real estate returns has risen across the board, primarily due to the expectation that the pace of interest rate tightening will slow and that the transmission of base rate cuts to the bond market will be slower than it expected in 2025.
Shopping centres and buy-to-let residential in Yorkshire and Humber come top of Savills' ranking for comparative returns for investors over the next five years, although their returns profiles are quite different.
Savills forecasts that income will make up the majority of returns on shopping centres, as "cyclical lows" drive strong rental growth in dominant locations over the medium term. This should generate more institutional investor interest in the sub-sector, with very limited risk of shopping centres being replaced by better schemes if they are already dominant.
Buy-to-let residential in Yorkshire and Humber, meanwhile, is more split, the adviser says, between capital value growth and income return. Savills forecasts that the north of the UK will continue to deliver a better total return for residential investors than the south in the near future. In the rural sector, land will continue to perform well long term, offering steady capital increases year-on-year, and providing diversification in portfolios.
In total, 13 UK property sub-sectors are forecast to see annualised returns of over 8% between 2026-2030 in the Savills outlook.
The adviser says that development viability will remain challenging throughout 2026, and this will lead to shortages of prime assets in most locations, ensuring that rental growth will generally be sustained at its current higher-than-normal levels.
Richard Rees, managing director, Savills UK, said overall it is forecasting a slightly more muted recovery in UK real estate investment markets over the next five years than it has seen emerge from previous downturns, but said there still should be a steady improvement in both volumes and values across 2026.
"The story on interest rates is encouraging: expectations point to a 50-basis-point reduction, bringing rates closer to 3%. This shift, combined with narrowing bid-ask spreads and greater realism among vendors, suggests a market ready for more activity.
"Residual pent-up demand in residential remains, rural property continues to attract strong interest, and scarcity in prime offices, retail and industrial space is driving rental growth. The total returns on offer will be broadly in line with the long-run average, and this should ensure that property remains a key part of many investors’ portfolios.”
Commercial getting stronger
In commercial real estate, Savills said 2026 should see a rising recognition that the UK is in a comparatively good place.
According to the brokerage, the UK’s occupational story will remain robust in 2026, based around continued low levels of development activity and normal levels of tenant demand, which will deliver higher than normal prime rental growth across all sectors. But it says tenants will continue to be extremely selective on location, with prime buildings in secondary spots proving harder to let than it would expect at this phase of a "normal" property cycle.
Another area, it says, where this cycle is clearly different is the lack of distress in the investment market. While Savills feels this is broadly positive, the lack of distressed sales has created a "target-poor environment" for the opportunistic buyers and stymied the recycling of capital through the market.
Savills says that it expects to see a trickle of motivated sales next year, and that while it forecasts a gentle increase in prices and investment volumes over 2026, there is unlikely to a huge surge in activity.
Following what the adviser describes as a year of uncertainty, the UK’s outlook is more stable than it was a year ago.
Savills writes: "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."
It is therefore forecasting approximately £55 billion of commercial property investment in 2026, slightly up from 2025’s forecast full-year total of circa £50 billion.
Offices remain Savills' favoured commercial property pick for investors in 2026, due to steady, but highly location-focused, tenant demand, a lack of new supply and better than normal rental growth.
Savills also highlights retail as remaining in the growth phase of a traditional cycle, with vacancy rates in dominant locations at cyclical lows and delivering demonstrable rental growth. Medium term, it remains optimistic about retail now that "omnichannel is omnipresent and shopping centres are looking increasingly defensive against some wider structural changes". Finally, the ongoing AI and cloud-driven boom in demand for data centre space will see further stiff competition for land.
Rural has more opportunities
In rural property Savills argues there are more opportunities available in the sector than ever before.
Savills forecasts that in the rural markets, farmland supply and values will stabilise in 2026, before increasing from 2027, although trends and pressures affecting farming enterprises differ among regions so growth in certain areas will offset declines in others.
The adviser anticipates that overall growth in farmland values will resume from 2027, coinciding with increased policy clarity, and that land, when compared to other asset classes, continues to perform well long-term and returns steady capital increases year-on-year. As such, it remains a stable haven and provides diversification in long-term portfolios.
Savills says that through increased collaboration across private and public landscapes, opportunities are available for the sector from more sources than ever before. Food production, development –whether for housing or data centres – energy generation, and forestry (as part of environmental strategies) are set to drive investor demand. According to Savills, forestry, like many capital markets, was a mixed picture during 2025, with uncertainty around the wider economic outlook dampening buyer interest, but the weakening price trends seen during 2023-2024 appear to have stabilised and the outlook for forestry prices in 2026 will be linked to wider global economic trends.
The UK’s policy environment is also supporting the acquisition of land for energy use, says Savills, setting a clear target for each technology class and each region, making finding sites that can be connected to the grid essential to investor and developer success.
Savills is expecting a quieter year in 2026 in policy terms, after a landmark 2025.
Residential outlook appears brighter
Alongside the general economic backdrop, those events are set to shape the returns generated from different parts of the residential market over the next five years.
While it has downgraded its mainstream house price forecast for 2026 to 2%, over the medium-term Savills says that the outlook appears brighter, especially in late cycle markets across the North, Scotland and Wales.
It also anticipates stronger price growth and says increased sales activity from 2027 will improved housebuilders’ appetite for development and activity in the land market. It says housing associations will also be more active in the latter as they have a short window for buying sites under the new Social and Affordable Homes Programme. Those investors holding strategic land will have a good opportunity to secure the planning which unlocks its development potential, Savills says, although uncertainties remain regarding what the government will seek to extract via land value capture.
In the institutionally-led living sectors, the build-to-rent development pipeline is set to recover, as housebuilders look for more routes to market and investors see competitive returns re-emerge, while in multifamily investors are set to focus more of their activity on existing units which deliver a stabilised income stream, with some owners look to recycle capital, and others look to consolidate their position by expanding to build critical mass in 2026.
Savills says the expectation is that those looking to exit first-generation stock will provide opportunities for other investors looking to enhance returns through asset management, operational efficiencies and targeted capital expenditure.
In the student accommodation sector Savills says investors in 2026 will need to ensure the thoughtful underwriting of locations, with a tighter focus on the financial strength and growth potential of individual institutions, and be highly selective in choosing the right operating partner.