Property consultancy CBRE has published its 2026 UK Real Estate Market Outlook Mid-Year Review, which forecasts a GDP growth of 0.9% for the UK this year, down from a previous estimate of 1.2%. This adjustment is largely attributed to geopolitical tensions and rising commodity prices that are adversely affecting the economic landscape. Inflation is anticipated to peak at approximately 3.5% in Q4 2026, with interest rates expected to remain stable. Additionally, a modest rise in unemployment is predicted before it begins to ease in 2027.
Investment Activity Overview
In the first half of 2026, investment momentum has notably softened due to geopolitical uncertainty, with UK transaction volumes reaching £23 billion, reflecting an 8% decline compared to the previous year. Nonetheless, the UK has attracted the highest investment levels in Europe during this period, as prime assets and core locations continue to outperform secondary stock, according to CBRE‘s analysis.
Market Resilience and Investor Sentiment
Despite lingering uncertainties, the resilience of the UK real estate market is evident. The underlying fundamentals remain strong, providing a solid foundation for ongoing activity. Tasos Vezyridis, Head of European Research at CBRE, noted a robust investor appetite across various sectors, particularly in infrastructure-adjacent real estate, which is drawing in an increasingly diverse pool of capital.
Living Sector Challenges
However, the living sector continues to face challenges related to new developments, primarily due to elevated financing and construction costs. Nevertheless, there have been significant transactions involving stabilised income-producing assets, especially in the London multifamily housing market during the first half of the year.
Focus on Purpose-Built Student Accommodation
Investment in the purpose-built student accommodation (PBSA) sector has predominantly centred on refurbishment and value-add strategies. With strong rental demand, a diminishing future supply pipeline, and government-backed housing initiatives, the PBSA sector is expected to witness increased investment activity. CBRE forecasts that living sector investment volumes will exceed £13 billion by the end of the year, marking a 4.1% year-on-year increase, thus setting a new record for the sector.