Market outlook
Cautious optimism defines the year. Again.
Two years ago, some in the sector adopted the mantra ‘survive to 25’. This statement of intent captured both the challenge and the hope. However, 2025’s anticipated rebound didn’t materialise. Early momentum faded as static economic growth and fiscal uncertainty weighed on activity.
We asked 275 real estate and construction businesses about their approach and sentiment towards the year ahead. Their answers point to a more stable environment and clearer growth prospects. Interest rates are lower, funding conditions are more favourable and demand for quality assets remains strong. In the wake of a disappointing 2025, the industry has undoubtably shown resilience.
Significant challenges persist in the sector’s outlook, especially from rising tax and viability pressures. These realities inform our outlook for the year ahead: optimism is building, but is firmly grounded in caution.
Economic forces remain real estate’s strongest driver
Given the huge swings in uncertainty around tariffs and taxes last year, coupled with a sharp slowdown in growth in the second half of the year, it’s unsurprising that our respondents rank economic volatility and recession risk as the biggest barrier to investment.
Ranking the largest barriers to investment
Economic recession/volatility remains significant with 43% ranking it the largest barrier to investment, this has trended down over the last four years.
However, there are reasons to be more hopeful for this year. Inflation is expected to drop back to 2%, interest rates will come down further and there should be no need for another round of tax increases. That will provide a better back drop for confidence to improve. Indeed, 64% of our respondents are optimistic about the year ahead.
Optimistic outlook for real estate market prospects
Yet, longer‑term expectations for the UK real estate market have been reset as firms adjust to the ‘new normal’. Interest rates are likely to settle around 3% rather than returning to near zero and growth seems stuck at around 1%, leaving a more challenging environment than experienced before the pandemic.
Tax pressures and political uncertainty creating investment barriers
39% of our real estate leaders now rank tax as the biggest investment barrier. This is up from last year and reflects a sharp rise over the last two years. Concerns about tax are now the highest in the decade of this survey, reflecting the growing worry about the cumulative impact of policy intervention on an already highly taxed industry. Concerns about business rates remain high, as businesses grapple with cost pressures on certain assets, including leisure and hospitality. Political instability also impacts confidence, with over a third of respondents ranking domestic and global politics as a key influence on decision‑making.
Structural trends supporting growth prospects
Beyond barriers to investment, this year’s findings point to a number of positives. Technological advances have the potential to reshape real estate, and raise both investment efficiency and occupier expectations. Demographic shifts and evolving consumer preferences will drive demand, while persistent supply-demand imbalances continue to make many asset classes appealing over the long-term. Running parallel to that positivity is an increasing premium on operational assets as a driver of value creation.
In this environment, disciplined strategies and thoughtful navigation should continue to deliver attractive returns.
