The UK property market is showing signs of resilience but remains constrained by economic uncertainty and muted investor activity, according to Colliers’ latest monthly snapshot.
While transactional volumes recovered in March 2026, the broader picture points to a market still grappling with higher borrowing costs, subdued growth expectations and uneven sector performance.
At a macro level, the UK economy continues to expand modestly, with GDP rising by 0.5% in February and matching that pace over the latest three-month period. However, this growth masks underlying fragility. Construction output fell by 2% over the same period, while inflation climbed from 3% in February to 3.3% in March and is expected to rise further as energy prices feed through the system.
Labour market indicators are also softening. Unemployment has edged up to 4.9% and job vacancies continue to decline, while wage growth has slowed to 3.6%. At the same time, mortgage rates are rising again, with the two-year 75% loan-to-value rate increasing to 4.45% in March.
Colliers notes that interest rates are now expected to remain stable through the rest of 2026, with cuts unlikely in the near term a backdrop that continues to weigh on real estate activity.
Investment recovery stalls
Against this economic backdrop, commercial property investment remains subdued. Transaction volumes rose from £2.3bn in February to £4.2bn in March, broadly in line with the five-year monthly average. However, the year-to-date total of £8.9bn is still around 17% lower than the same period in 2025, underlining the slower start to the year.
London continues to dominate, accounting for around 60% of investment activity, while Manchester and Birmingham follow at a distance. Cross-border capital remains a key driver, representing 47% of all transactions so far this year.
Offices and industrial assets are leading the market, accounting for 27% and 21% of investment volumes respectively. Yet Colliers warns that geopolitical risks and volatile financing conditions are likely to limit dealmaking in the near term.
Retail remains under pressure
Retail continues to face structural and cyclical challenges. Investment volumes increased to £530m in March but remain below the five-year average, with year-to-date activity down 36% compared to 2025.
Consumer fundamentals are mixed. Retail sales volumes rose by 0.7% in March and are up 1.6% over the latest three-month period, but confidence remains weak, with the GfK index falling to -21. Rental growth has slowed, with retail rents rising by 1.7% year-on-year below the stronger growth recorded late last year.
Offices show selective demand
The office sector is displaying signs of recovery, albeit unevenly. Investment volumes reached £1.4bn in March, exceeding the five-year monthly average for the first time this year. Despite this, year-to-date volumes are still 11% below 2025 levels, reflecting ongoing caution among investors.
Leasing activity remains relatively robust. London office take-up reached 2.4m sq ft in the first quarter, slightly below the long-term average, while pre-letting activity hit its highest level since late 2023 at 932,000 sq ft. However, the market is becoming increasingly bifurcated. While new and refurbished space is seeing rising availability, second-hand vacancy is falling, suggesting occupiers are compromising on quality in the face of limited options or cost pressures.
Rental growth has also begun to ease, slipping to 2.9% in March.
Industrial momentum slows
The industrial sector, which has been a standout performer in recent years, is beginning to lose some momentum. Investment volumes rose to £750m in March but remain below historical averages, with year-to-date activity down 14% on 2025.
Occupier demand remains solid but is moderating. Take-up reached 6.1m sq ft in Q1, up on the previous quarter but 11.5% lower than a year earlier. Vacancy has ticked up slightly to 8.7%, while the speculative development pipeline is shrinking significantly, with only 7m sq ft due to be delivered this year compared to a five-year average of 13.4m sq ft.
Rental growth is also cooling, slowing to 4.3% the weakest rate in almost five years.
Hotels emerge as bright spot
In contrast, the hotel sector is seeing a strong resurgence. Investment volumes climbed to £390m in March, pushing year-to-date activity to £1.2bn more than double the level seen in the same period last year.
Rental growth has accelerated to 3.2%, while yields have moved higher, reflecting both investor demand and pricing adjustments. However, consumer spending remains under pressure, with expenditure on accommodation and food services declining in February, highlighting the fragile nature of demand.
Residential shows mixed signals
The residential sector presents a similarly mixed picture. Investment volumes rose to £570m in March, above the five-year average, but are still 37% lower year-on-year. House price growth remains subdued at 1.5%, well below long-term trends, while rental growth has slowed sharply to 3.1% from 7.3% a year earlier.
At the same time, activity is picking up, with property transactions reaching an 11-month high and mortgage approvals increasing. The purpose-built student accommodation market continues to lag, with investment volumes at just £100m in March below historic averages reflecting wider capital constraints.
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