Einstein dies and goes to heaven. First person he sees he asks, “Excuse me, what’s your IQ?” The person replies, 280. Einstein says, “Great, we can talk about astrophysics!”
2nd person he runs into he asks the same question, “what’s your IQ?” The person replies, “150”. “Great!” says Einstein, “we can talk about events of the day!”
3rd person he sees he once again asks about their IQ. This time the person says “45!” Einstein says, “Great, where do you think the real estate market is headed?!”
If you don’t laugh, you might cry – trying to make sense of how the latest geopolitical events will play out has (again) made calling the market a challenge.
The start of 2026 has seen stability returning and while the amount of available stock on the market remains muted, confidence has been improving. The bigger picture challenges will play out and if some sort of reasonably swift outcome can be achieved, then hopefully the early momentum will continue. A protracted conflict will not be helpful.
Across the sectors, good buyer depth remains for quality industrial, retail warehousing and high street retail, while PBSA appetite is becoming focused on assets with “value” rents and a cluster bias. The office sector is also seeing improving levels of interest. A lack of any meaningful new development in the strongest markets, attractive entry yields and the prospect of rental growth is making the investment rationale more compelling.
With this backdrop, in addition to our wider market analysis, our focus this review will be looking at the office sector. How liquid is the market, what type of product is most attractive (dry long leased/core plus or value-add) and how pricing might move in the short to medium term. To help form our view, we are pleased to include a guest contribution from Jacob Thompson, Senior Investment Manager at Union Investment Real Estate.
Control the controllables is a common phrase used at a time of uncertainty but, perhaps even more relevant, we are aiming to “keep calm and carry on…”
Market Overview.
Key Themes
Cost of debt volatility – with Swap rates seemingly reacting to every new post from President Trump, securing attractive debt terms in the short term has become more difficult. Lenders are finding it a challenge being able to fix a proposal during such volatility.
Edinburgh office market resilience – the sale of Waverleygate and Exchange Plaza (both significant core plus opportunities) in this quarter shows that investors believe in the rental growth story in the city and after a quiet 2025, the letting market is showing marked signs of improvement in early 2026.
Continued Fund evolution/consolidation – on top of the emergence of hybrid Fund models (direct property holdings plus global REIT shares), there has been a flurry of retail fund consolidation including, L&G with Federated Hermes, Columbia Threadneedle with Nuveen and most recently Columbia Threadneedle with Patrizia. Scale is being sought and with the merged Local Authority Pension schemes, the amount of active “core” capital is increasing.
Logistics rental growth remains compelling – recent sales have shown that there remains a lot of conviction in the logistics sector where, if the location/product is strong enough, investors are happy to live with net initial yields in the 4%-5% range in anticipation of significant rental growth coming through reviews or lease expiries, ideally within a 2-3 year period.
PBSA focus on value – as the effects of rising cost of living and rental affordability come into sharp focus, investors are shifting their attention from high-end studio heavy schemes to the value end of the spectrum – cluster-led, not reliant on overseas students and working off affordable rents, where sensible growth assumptions are more realistic.
Lack of quality stock – there continues to be limited prime stock openly available across the sectors. Not a scientific approach to investment advice but anything of quality that is brought to the market is getting good traction and achieving strong pricing.
Transaction Volumes
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Q1 saw £365m traded, up 81% on Q1 2025.
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Q1 volumes were 6% below the 5 year average.
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Q1 average lot size was £11m.
Key Recent Transactions.
Q2 saw some interesting themes and significant transactions which we have highlighted below:
Braehead Shopping Centre, Glasgow
“Frasers Group adds to its rapidly growing portfolio”
Vendor: SGS Retail
Purchaser: Frasers Group
Let to: Next, Apple, M&S, Primark
Price/Yield: £220m / c8%
Date: November 2025
Total, Aberdeen
“French SCPI expands portfolio with Aberdeen industrial”
Vendor: Tritax Big Box
Purchaser: Alderan
Let to: Total Energies
Price/Yield: £28.55m / 8.1%
Date: October 2025
Uniqlo, Argyle Street, Glasgow
“Flagship shop snapped up”
Vendor: Praxis
Purchaser: Remake Asset Management
Let to: Uniqlo
Price: £9m / 7.12%
Date: December 2025
Henry Duncan House, Edinburgh
“Value add office acquired by SCPI”
Vendor: Sir Tom Hunter
Purchaser: Corum
Let to: TSB
Price: £19.2m / 7.20%
Date: November 2025
The investor view on the year ahead
Will 2026 be a year of opportunity?
This year’s survey results indicate that 86% of respondents maintain a positive outlook for the year ahead. While this represents a slight decrease from last year’s 88%, it nonetheless reflects a broadly optimistic sentiment across all investors.
Positivity was most pronounced among propcos (89%) and investment managers (91%), both of which continue to signal confidence in market conditions. Levels of optimism were more muted among funds (71%) and private equity investors (50%), suggesting a degree of caution within these groups.
Market sentiment throughout 2025 has been shaped by a disconnect between the strong optimism recorded last December and the more challenging economic reality that unfolded. Weak GDP figures and subdued growth momentum, combined with heightened uncertainty ahead of the November Budget, contributed to a marked slowdown in market activity. The Budget announcement from Chancellor Rachel Reeves, while anticipated, effectively placed deal-making and capital deployment on pause as investors waited for clarity on proposed measures.
With greater visibility now emerging around government policy, there is scope for market activity to regain momentum as we move toward 2026. A key potential tailwind is the expected easing of interest rates as inflation continues to recede as lower borrowing costs support enhanced liquidity.
What will the top three performing sectors be in 2026?
Retail warehousing (27%) and Living (25%) emerged as the most favoured sectors, broadly consistent with last year’s ranking, where Retail Warehousing accounted for 23% and Living for 27%.
Industrial, while still highly regarded, saw a modest decline in sentiment, falling from 27% last year to 23% this year. This slight shift may in part reflect portfolio rebalancing after a prolonged period in which industrial assets have dominated allocations. Nevertheless continued rental growth prospects and sector liquidity ensure that industrial remains a core focus for many investors.
Notably, both Offices (14%) and High Street Retail (11%) recorded a clear resurgence in confidence, rising from 9% and 6% respectively last year. For offices, limited new development – due to viability constraints – has sharpened investor interest in refurbishment and repositioning strategies.
High Street Retail’s improving outlook reflects the period of rental correction. Many units have now been rebased, bringing rents back to sustainable levels and prompting renewed investor attention in prime locations. Very low vacancy rates in these core pitches further reinforce attractiveness.
What three factors do you see as creating a more liquid market in 2026?
Confidence was identified as the most important driver, receiving 28%. This was closely followed by the stabilisation of debt terms (27%) and improving macro-economic conditions (23%). The near-even distribution across these three highlights the interconnected nature of sentiment, financing conditions, and the economic backdrop in shaping market activity.
These themes were broadly consistent across investor types, with confidence ranking first for nearly all groups. The exception was private equity investors, for whom debt terms and macro-economic conditions were more influential.
Confidence also led the responses last year, underlining the challenges the market has faced in achieving stability. Ongoing planning constraints, uncertainty surrounding UK policy, and global headwinds – including geopolitical conflicts, inflation pressure, and trade-related tensions – have all tempered transaction volumes.
Weight of money (15%) and pressure from lenders (7%) were cited less frequently but remain relevant secondary factors. The relatively low influence of lender pressure reflects the absence of widespread forced sales, contrasting notably with the post-GFC environment.
“Expert view” on the outlook for 2026…
Nick Peet
Divisional Managing Director,
Real Estate Finance, Santander
2026 – a year of opportunity?
Yes absolutely! The CRE sector in the UK has shown time and again that it retains many resilient features. The latest market headwinds certainly present different challenges to previous difficult cycles but the most skilled and energetic operators continue to find deals and thrive. I expected greater activity levels with regards to transactions in 2025 but now expect this overhang of pent-up demand and required seller activity to gather pace in the New Year. There has been a lot of readjustment with regard to rent levels/ lease profiles and wider tenant behaviours with a clearer picture now emerging of what is needed and where.
Sectors most likely to be in favour?
As a lender in a Corporate Bank with an open mind on all commercial property, I would hope to see opportunities from all CRE sub-sectors. That said, the sector that I would be delighted to see most renewed activity in would be development, especially Residential and Office. Hopefully, new models can emerge and deliver, which combine required public sector support and CRE nous to introduce a few more cranes across our towns and cities in an economic environment with less inflationary cost pressures.
What factors could create a more liquid market in 2026?
The biggest single feature will be a number of historic positions where there is a need to embrace a change. Whether driven by Sellers and Buyers price expectations becoming closer aligned or both junior and senior lenders having to firm up exits. I am also very hopeful that the CRE market will get a much-needed bounce of the ball with lower interest rates and some domestic economic stability, enabling greater levels of business confidence.
Philip Eaves
Divisional Managing Director,
Real Estate Finance, Santander
2026 – A year of opportunity?
Regardless of market conditions, there are always golden nuggets to be found. With sound advice (obviously!) and a bit of luck, these assets can deliver exceptional returns, and I expect the same to be true next year. We have seen rental growth across our industrial and retail portfolio, and for the right product, this trend should continue. Having completed several sales this year, we are now well-positioned to uncover new opportunities characterised by robust tenant demand and genuine rental growth potential.
Sectors in favour?
I am anticipating a strong year for prime Retail, a sector towards which we have significantly rebalanced our portfolio over the last five years. We have the freedom to invest in whatever part of the market appears most attractive, and we made this shift to acquire quality assets with rebased rents at sensible yields. MSCI returns now show Retail performing on par with—and in some sub-sectors outperforming—Industrial, and it is likely these two will remain the top performers in 2026.
While there is talk of the Office market bottoming out, the debate is nuanced. Overall, the sector seems to have stabilised—a positive sign—though I don’t see us increasing our exposure just yet. It remains an area to watch.
What factors could create a more liquid market in 2026?
Rental growth is key. If rents rise, money flows into the sector, and liquidity and price movements follow. Consequently, we need strong rental growth to drive liquidity.
A more competitive debt market would also be beneficial. Restricted access to debt has constrained parts of the market for several years, but this appears to be easing. This improvement, combined with a slight lowering of the base rate, should provide support. Given that thematic private equity has played such a large role recently, improved debt conditions might help plug the gap for areas that offer great risk-adjusted returns but don’t fit the mainstream trend narrative.
Howard Crawshaw
Managing Director,
Knight Property Group
2026 – a year of opportunity?
I sincerely hope so, it’s been a tough run in 2025 and been hard to dig out opportunities. The elections in Scotland could slow up things but they may also provide opportunities if some owners wish to trade out of Scotland. As a business we will also cast our net south of the border.
Sectors in favour?
I can see offices making a comeback (as more and more businesses get back full time into a market with quality space at a premium) but possibly 2026 will be too early…sheds surely will continue to be popular given the lack of new quality product and I think retail warehousing will be popular.
What factors could create a more liquid market in 2026?
I would love to think interest rates dropping by 0.50% will have an impact but I think this is wishful thinking…a stable economic outlook would help but then again I think this is wishful thinking as we are so tied into what happens out with the UK too so I guess my wish would be to see more entrants into the market like the French SCPIs to create some competition and more attractive pricing to allow sellers to trade stock at better levels.
Ewan Stewart
Transactions Manager,
DTZ Investors
2026 – a year of opportunity?
I hope so. The start of 2026 is likely to remain cautious until we see an interest rate cut. I expect a continued shortage of new stock, driven by a suppressed development pipeline – both a Covid hangover and escalating build costs. Correcting valuations in the recently out-of-favour sectors could be an interesting strategy next year.
Sectors in favour?
In 2025, retail parks, supermarkets, hotels and multi-let industrials led the way, and I expect a similar picture in 2026. Favoured sectors will be those capable of delivering long-term, sustainable rental growth and often supported by long-term, index-linked leases. A key focus for us is minimising capex risk – whether that’s ESG-related or tied to re-letting, given ongoing cost volatility.
What factors could create a more liquid market in 2026?
The two main ones that spring to mind would be less geo-political uncertainty and a cut to interest rates. Transactions we were involved with in 2025 already showed signs of improved liquidity, with deeper buyer pools and more bids compared with 2024. Hopefully that continues into 2026. I also expect competitive pricing for core product, with pooled pension funds holding capital to deploy, and all targeting similar stock.
Our View
Sectors offering best value
Logistics – particularly in the central belt where supply is constrained and pricing continues to look attractive compared to south of the border.
Edinburgh Offices – continued appetite for core and value add offices in the city underpinned by the supply/demand in balance and limited pipeline.
Prime High Street Retail – positive letting activity in the best locations coupled with strong rental growth make for a compelling story.
Private capital
Following a busy couple of years, we expect high net worth private investors and family offices, both domestic and overseas, are likely to continue to target the Edinburgh and Glasgow markets in 2026. Being, on the whole, longer term holders of property, the opportunity to acquire prime assets with relatively limited institutional competition at historically attractive pricing has resulted in a good depth of private investors acquiring multi let industrials, high street retail and offices. We expect this activity to continue to provide liquidity for sellers looking to divest non-core assets.
Uptick in fund activity
Whilst still suppressed, there has been a notable increase in funds bidding on assets over the latter half of 2025. Acquisitions are likely to remain focused on supermarkets, retail parks and industrial, with segregated pension funds leading the way. Disposals of non-core holdings to continue but, with limited redemption pressure, this is more refocusing portfolios into certain sectors rather than pressured selling.
French SCPIs
The Scottish market continues to be a happy hunting ground for the SCPIs. Acquisitions will continue into the new year, targeting 5 year plus income, to strong covenants, off an NIY of 7% plus, and generally sub £10m lot sizes but with some notable exceptions.