The UK real estate market has proved resilient through the first half of 2026 despite mounting geopolitical and economic uncertainty, according to CBRE, which said investor confidence is expected to strengthen through the remainder of the year as capital targets sectors linked to artificial intelligence, digital infrastructure and defence.
In its mid-year UK Real Estate Market Outlook, the adviser revised its 2026 UK GDP growth forecast down to 0.9%, from 1.2% at the start of the year, citing geopolitical tensions and higher commodity prices. Inflation is expected to peak at around 3.5% in the fourth quarter, while interest rates are forecast to remain on hold.
Investment activity slowed during the first six months of the year, with UK transaction volumes falling 8% year-on-year to £23bn. However, CBRE noted that the UK remained Europe’s most active investment market, with investors continuing to favour prime assets in core locations over secondary stock.
The adviser said moderating swap rates and more attractive pricing should support acquisition activity and mergers and acquisitions through the second half of the year.
Tasos Vezyridis, head of European research at CBRE, said: “The first half of 2026 has been shaped by geopolitical conflict, inflation concerns and a changing political landscape. Despite this, the occupational market is robust, debt markets remain liquid and demand for prime assets continues to exceed supply in many sectors.”
AI fuels office demand
Across the office market, CBRE said occupier demand remained resilient, with Central London take-up expected to broadly match 2025 levels. Technology, media and telecommunications businesses continued to underpin activity, particularly AI companies, which accounted for around 700,000 sq ft of leasing activity in the capital during the first half.
Limited grade-A supply continued to drive rental growth, with prime City rents reaching £95 per sq ft, up 12% year-on-year, while rents in Mayfair and St James’s climbed 18% to £200 per sq ft. Prime office rents also increased in Birmingham and Manchester, with defence and cybersecurity occupiers supporting regional demand.
The living sector continued to face headwinds from elevated financing and construction costs, constraining new development. However, CBRE highlighted a wave of transactions involving stabilised income-producing assets, particularly in London’s multi-family market, while purpose-built student accommodation investors focused on refurbishment and value-add opportunities.
The adviser forecasts living sector investment volumes will exceed £13bn by the end of the year, representing annual growth of 4.1% and setting a new record for the sector.
Industrial and logistics fundamentals also remained supportive, with third-party logistics operators accounting for 45% of take-up during H1. While the development pipeline increased by 6% to 19.9m sq ft, two-thirds of space under construction is now build-to-suit, limiting speculative supply and supporting expectations of lower vacancy rates in the second half.
CBRE identified data centres as one of the UK’s strongest-performing real estate sectors, with demand from hyperscalers, AI companies and cloud providers expected to push London take-up beyond 200MW for the first time.
Although London still accounts for 83% of UK data centre supply, land and power constraints are encouraging operators to expand into neighbouring markets, with power availability and speed to market becoming increasingly important site selection factors.
Capital backs opportunity
Retail also outperformed expectations despite weaker consumer confidence, with retail parks continuing to benefit from low vacancy and strong occupier demand. Prime Central London pitches and dominant shopping centres were also seeing rental growth due to constrained supply.
Within operational real estate, investor appetite remained strong across healthcare, hotels and self-storage. Hotel investment reached more than £2.9bn during H1, an increase of 119% year-on-year, as London continued to attract significant domestic and international capital.
Meanwhile, demand for science and innovation space broadened beyond traditional life sciences occupiers. CBRE said businesses operating in AI, defence technology and advanced research drove take-up of 570,000 sq ft across London, Oxford and Cambridge during the first half, making it the third strongest six-month period on record for the sector.
Vezyridis said: “Resilience has been evident across much of the UK real estate market. While uncertainty remains, the underlying fundamentals continue to provide a solid foundation for activity.
“Looking ahead to the remainder of the year, we expect confidence to continue building and capital to be deployed across a broader range of opportunities, particularly in sectors linked to artificial intelligence, digital infrastructure and defence.”
Image: ©Adobe Stock
Send feedback to Akanksha Soni
