Craig Wright of Aberdeen Investments on why the waltzer ride calls for the right strategy
Real estate is moving again, but not in a straight line. Yet the direction of travel is more constructive.
Craig Wright is head of European real estate research at Aberdeen Investments
It is in this environment – where market returns are fragile, capital markets are fragmented but opportunities exist – that asset and fund strategy makes the real difference. A manager’s ability to adapt is where performance will be won and lost as we wait for the waltzer to end.
The stop-start nature of the macro backdrop is the key reason we can’t seem to get off this ride. Having been jolted back and forth by geopolitical events, a full-blown recovery remains elusive. We expect UK growth to remain subdued, while inflation remains sticky. We expect developed markets to remain hawkish but possibly rise further this year. Eurozone growth should accelerate from 0.8% in 2026 to 1.8% in 2027 – a level that, if achieved, would be a strong positive signal for the market. But so much hinges on geopolitical posturing over which we have no control.
For now, market returns will follow that uneven path. Our base case forecasts 5.4% UK All-Property returns over the next year and 7.0% a year over three years. For Europe, the figures are 6.3% and 7.6%. Income will do most of the work at first, with capital growth returning as confidence grows.
Liquidity has scope to improve. Local Government Pension Scheme pooling and defined-contribution master trusts should expand UK demand for real assets, while listed and cross-border investors are becoming more active. Investors raised $30bn (£22bn) for UK and European property strategies in 2025, with long-term institutions providing 70%. This has yet to lift deal volumes materially, but provides a firmer platform for recovery.
The stop-start nature of the macro backdrop is the key reason we can’t seem to get off this ride
The waltzer is also a useful metaphor for how we view subsectors: some are up, others remain down and some are still in an uncontrolled spin. UK office returns in aggregate are in low single digits, but offices in London’s West End and Midtown produced a reasonable 6.8% over the 12 months to June 2025. Rents have grown fast in many London submarkets, particularly those connected to the Elizabeth line, so the fundamentals in these segments seem solid.
We are recognising that AI could reshape demand in ways the market has yet to price fully. The UK and Europe have underperformed the US and Asia-Pacific when it comes to capturing technological transformation. Recent footage of backflipping robots in China will resonate with many readers.
Industrial strength
Industrial and logistics is also moving at a different speed, with UK performance softening relative to All-Property. We favour regional industrial assets over those in London and the South East after their strong rental run. In Europe, we forecast 8.8% annual returns over three years.
Despite current weakness, constrained supply, ecommerce, reindustrialisation, nearshoring and defence spending support the long-term outlook, with German fiscal easing and ‘made in Europe’ policies stimulating occupier demand.
White-knuckle ride: the stop-start macroeconomic climate has left many property subsectors in a spin
Retail is firmly back at the funfair. UK retail returned 8.4% in the year to June, led by supermarkets, grocery-anchored parks and well-let convenience assets offering resilient income and limited supply. Supermarkets’ high position in our three-year House View ranking also reflects modest growth expectations elsewhere. European retail returned 7.3% in the year to March, while we forecast annual returns of about 9.4% for retail parks over three years. Weaker confidence and cost pressures leave discretionary formats more exposed, making tenant mix and positioning critical.
The living subsector is more of a teacup ride than a waltzer; it has the deepest demand, but often some of the hardest underwriting. European residential deals reached €29bn (£24bn) in H1 2026, the highest share of any sector. With mortgage rates under upward pressure across the UK and Europe, rental attracts a growing share of demand. From a relative performance perspective, regulation, operating costs, affordability challenges and local amenities now matter as much as demographics – so, much is to be gained by investment strategy and operational efficiency.
Single-family rental remains our preference, as its operating efficiencies and rental growth prospects are stronger.
We would support gradual re-risking if the outlook became clearer, but for now we are focused on the right strategies for an uncertain market, on what we can control, and acting on long-term conviction in those strategies. Investors who read the market well, fully price their capital plan and execute decisively will be best placed to ride this waltzer out.
Craig Wright is head of European real estate research at Aberdeen Investments
