How is the UK real estate market developing? A market commentary by Claudia Nacke, head of Deutsche Hypo – Real Estate Finance UK
After a year of stabilisation in 2025, investors are stepping into 2026 with measured confidence. The market feels firmer—but also more polarised. Prime assets in prime locations are outperforming across offices, logistics, retail parks, and food‑anchored retail. Older or secondary stock (notably provincial offices) continues to face leasing, capex, and ESG headwinds, and the gap is widening.
Offices & Retail (prime):
Supply remains constrained. Limited new development and long lead times are fuelling competition for best‑in‑class offices, while well‑located retail parks and grocery‑anchored formats hold their ground on the back of resilient footfall and convenience.
Living sectors:
Build‑to‑Rent sentiment is constructive with deep investor demand, but delivery is hampered by high build costs, planning timelines, and yield hurdles. Renter demand stays robust; rent growth is stabilising. In PBSA, the defensive, income‑led thesis persists, however, headwinds are strengthening notably and divergence is emerging across cities and university tiers.
Logistics & last‑mile:
Occupiers increasingly prefer modern, high‑spec units for operational efficiency and to meet ESG targets—creating a clear “new vs. old” split. Vacancy rates are stabilising, demand is broad‑based, and prime rental growth remains achievable in select sub‑markets.
Macro lens:
Inflation has improved, and overall sentiment has followed – but the final mile to target (2% – Bank of England) matters. With inflation and interest rate adjustments closely linked many expect rate cuts by mid‑2026. I agree with the general direction but remain cautious on the speed. Energy costs, base effects, goods prices, wage moderation, and policy choices—domestic and international—will determine how quickly we get there. Will the BoE’s 2% be reached by mid‑year? The jury is still out.
As senior lenders, our focus is unchanged: secure, reliable, and sustainable financing for liquid, future‑fit assets and partners. If you’re navigating capital structure, capex, or asset repositioning for assets in the UK or Ireland in 2026, let’s talk.