Will weaker economic growth in 2026 feed through into a weaker occupational story?
Logically, the answer to this question should be ‘yes’, and it’s hard to argue that the fiscally-induced slowdown in the UK will not lead through to weaker occupational demand across all the key commercial property sectors. However, the higher-than-normal prime rental growth that we have seen over the last five years has not been about a boom in tenant demand but the lack of supply. So, unless we see a surge in development completions in 2026 (or a rise in tenant exits), the undersupply and rental growth will be sustained.
The supply story is becoming increasingly nuanced, and investors would do well to dig into micro-market supply trends before committing. For example, in the central London office market, the level of development and refurbishment starts in 2025 was almost exactly in line with the average, while in the key regional city office markets, there were almost no development starts. However, while the London pipeline seems full, the bulk of the completions are outside the Core, and the bulk of tenant demand is in the Core. Similarly, in both the retail and logistics sectors, a high headline vacancy rate can often hide substantially lower availability in the prime or dominant schemes and pitches.
One of the joys of real estate is that there is always a hot new macro trend that feeds through into a real estate need, and 2025’s star was undoubtedly the AI and cloud-driven boom in demand for data centre space. Like so many of the rising stars of recent years, this is a sector that requires a high degree of investor expertise to assess, and we believe that the biggest impacts of the data centre boom in the UK in 2026 will be in terms of land deals and competition for land. Logistics developers, in particular, are already being outbid for key data and power-enabled sites, and we expect this trend to continue for the foreseeable future.
The office market remains our most favoured pick for investors in 2026, with steady (but highly location-focussed) tenant demand, a lack of new supply, and better-than-normal rental growth. The definition of prime has changed and is more location-specific than ever. Indeed, in some cases, we believe that a perfect location can compensate for a less-than-five-star building, something that should enable developers to value-engineer plans to a better return.
Retail property remains in the growth phase of a traditional cycle, with vacancy rates in dominant locations down to cyclical lows. This is delivering demonstrable rental growth, though we do expect that to soften in 2026 as retailers must adapt to higher operating costs. Medium-term, we remain optimistic about retail now that omnichannel is omnipresent and shopping centres are looking increasingly defensive against some wider structural changes, such as climate events and security.