Real Estate: 2025 Market Review & 2026 Outlook

2025 review

The UK real estate deals market in 2025 was defined by a gradual re-opening of liquidity as pricing expectations converged. The UK Budget had an impact in Q3/Q4 as many operators waited on formal announcements before kicking off or transacting on deals.

UK real estate M&A volumes for 2025 jumped to £56.5bn (based on MSCI data), which marks healthy growth compared with 2024 (£44bn).  This growth matches our own experience as while deals were more stop-start around the Autumn Budget, our Real Estate Deals Advisory team reported another record year of transaction activity in 2025.

There is reason for optimism with deal volumes increasing and debt pricing becoming more workable, but transactions remain hotly negotiated and deals are taking longer to execute – particularly compared to the buoyant 2021 and early 2022 levels - as investors and sellers both seek to maximise returns.

Offices and industrials were the most active sectors, with YOY growth in transaction volumes, but investors are also continuing to prioritise operational real estate sectors, which give the best chance for yield compression/growth.  Most noteworthy:

• “Beds” remain attractive investments with growth potential, although the Living, Hotel and Student sectors have ebbed and flowed against a backdrop of shifting global economic dynamics, with lower overall volumes compared with their relative peaks in 2024. That said, Hotels appear to be due another surge in 2026 based on our pipeline and wider market expectations
• Healthcare, including care homes, has grown significantly after a relatively quiet 2024, and is expected to be a key sector in 2026.  Opportunistic investors are seeking to acquire assets and grow returns through operational improvements
• Retail remains active – a continuation of its 2024 resurgence - predominantly led by shopping centres and retail parks, the valuations for which many believe have bottomed-out and are now on the up
• Datacentres have become an asset class of their own and have seen significant investment, including from more traditional real estate investors like Segro and Tritax, who are now making their mark in the sector

In the listed real estate space, REIT share prices remain discounted to NAV which has led to a continuation of the REIT merger and take-private activity seen over the last 2-3 years. However, many of the REITs that remain – particularly the larger ones - appear to be in a stronger position, with balance sheets and LTVs that give them freedom to be more acquisitive. We may even see a return to IPOs as funds exit some of the larger portfolios.

Importantly, the UK also remains a preferred destination for global allocators - well over half (64% in H1 2025 according to CoStar) of UK real estate investment was from overseas.

2026 outlook

Based on our current pipeline and market discussions, we remain optimistic for continued market recovery in 2026, buoyed by improved liquidity in the debt and equity markets and better aligned buyer/seller expectations. 

We expect this growth to be led by subsectors with clear growth potential- operational real estate asset classes, including hotels, living, retail, datacentres and healthcare. However, this is against a backdrop of geopolitical challenges, economic uncertainty and constraints over development activity, which may limit growth, leaving well-capitalised and opportunistic investors best positioned to benefit.