Overview

The economic outlook for the UK has been materially altered by the ongoing crisis in the Middle East. Borrowing costs across the economy have already adjusted. For real estate, that means the earlier case for further prime yield compression has weakened materially. The fact that the 10-year Gilt briefly breached 5% for the first time since 2008 is financially important as well as symbolically; it sharpens scrutiny on low real estate risk premia and reinforces the view that, at best, pricing is now likely to be stable rather than meaningfully firmer this year.

Build to Rent and Single-Family Rental

The UK Build to Rent (BTR) and Single-Family Rental sector (SFR) faced challenges against a volatile geopolitical backdrop in Q1 2026. Viability pressures, which remain a firm headwind, have contributed to a slowdown in the pipeline of new homes. The Government announced emergency measures in March 2026 to accelerate housebuilding in London, with the aim of unlocking stalled sites and to build thousands more affordable homes. Whilst supply looks to remain tight over the short and medium term, there continues to be demand for homes to rent and points to sustained pressure on rents in the sector, although rental growth is expected to be more moderate due to affordability pressures and the Renters’ Rights Act which is coming into force on the 1st May 2026.

Student Housing

Whilst there continued to be evidence of softening demand for UK higher education in Q1 2026, several markets are experiencing robust demand as the flight to quality by both domestic and international students continues. Across Purpose-Built Student Accommodation (PBSA) the softer demand, which can be partly tied to changes in visa rules for international postgraduates, as well as domestic students choosing to live at home, has led to lower levels of occupancy in some locations. There are also a number of other headwinds that the sector faces including the impact of the Renters’ Rights Act. However, undergraduate application data for the UK’s top tier universities remains robust, and structural supply shortages of PBSA in some locations, points to a positive outlook for occupancy.

Key Living sector activity

Despite a significant level of uncertainty in Q1 2026, investment activity in the Living sectors held up fairly well in Q1 2026. Overall, the backdrop now points to lower transaction activity in UK real estate this year than it otherwise would have been.  Weaker growth, higher energy costs and fragile confidence will weigh on some sectors, however those that offer secure income underpinned by supply constrained markets, should continue to present opportunities for investors. This has been consistently highlighted by the rising levels of demand from both domestic and overseas investor for UK BTR and SFR over the last year. In PBSA, Investment activity in the sector predominantly remains focussed on well-located assets within cities and towns in the UK home to top academic establishments.

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