So where is the UK real estate market headed?

As the final cocktails are  sipped at MIPIM and the final betting slips are ripped up at Cheltenham, it seems an appropriate time to take stock of the recent performance in the UK real estate market and consider what the rest of the year holds in store.

As to be expected, the war in the Middle East casts a shadow over all aspects of life, real estate included. What does this all mean for the real estate industry?

Higher construction costs

One of the quickest impacts of the war has been the rising oil and energy prices. With construction materials such as steel and cement being energy intensive, costs of development are expected to rise. Coupled with the possibility of supply chain disruption, it is likely that some projects will be placed on hold and profit margins squeezed.

Inflation

It is often the case in turbulent times for inflation to rise. This may force central banks to keep interest rates higher for longer. This in turn will put pressure on valuations and lead to lower transaction volumes.

Investor Risk Aversion

Investors typically are slower to deploy capital in times of global conflict and disruption. A feature of the last twelve months has been the slow pace of (most) transactions and fundraising. That pace is expected to reduce further in the short term; less capital will be deployed and for most investors, it is expected they may focus away from real estate for now, in the knowledge that the real estate sector will still be available when there is less market volatility.

2025 ended strongly

With all of the challenges impacting the real estate sector, there are certainly reasons for positivity. The real estate sector has been one of the most resilient over the past years, demonstrated through the performance in the post-COVID period. Global real estate deal value reached USD 873 billion in 2025, up about 12 percent year-on-year, even as transaction count remained static. In the UK, commercial property trading was positive in Q4 2025, with a double-digit rise year-on-year. Quarterly volumes in Q4 were also strong, with nearly a third being in London with overseas capital to the fore. This demonstrates the fundamentals behind the UK real estate sector have been, and continue to be, attractive to investors, both domestic and global.

What's next?

Whilst there is uncertainty in the market, it seems like it is already baked into investment modeling. Rather than the global conflicts ushering in a new real estate cycle, it feels more like an enforced re-set. 

Increasingly, we see property companies embracing the technological advances brought by AI, especially in the asset management space, with AI addressing deficiencies in data collection and reporting and reducing delays in decision-making. 

The office market continues to be the subject of positive vibes. Whilst quality and location of the asset is key, we are seeing examples of occupiers redesigning the workplace to support collaboration and hybrid work. In tandem with increasing formalization of “working in office” policies, it is hoped this will lead to an increase in the demand for well-located, high-quality offices.

The real estate sector has a knack of finding solutions to its problems. Whilst there may be a decrease in activity in the short term, it is considered that the UK real estate market is well-placed to perform strongly in the second part of 2026 and beyond.