For the data behind the commentary, download our latest UK Investment Report.
THE SUMMER RESET
While the summer has been hot, the investment market, it is fair to say, has been running cooler. After a quiet Q1, Q2 saw a further 7% fall in investment activity to £11.3 billion. This means that by the end of the first half of the year, just £23.4 billion had been transacted – 34% down on the H1 investment for 2025. Since then, Swap and gilt market volatility has continued to act as a constraint on momentum and there are signs of an improving but thin market, with best in quality assets still attracting competitive bidding, while secondary stock and capex- intensive assets are proving more difficult to price.
Real estate performance nevertheless remains relatively robust with the MSCI Quarterly Index delivering total returns of 0.8% for the quarter, representing 5.1% over twelve months. While still positive, this represents a downturn from recent performance as a result of negative yield impact across almost all sectors, while rental growth remains positive. As a result, dispersion is flattening rather than widening, highlighting the fact that market conditions are having an impact across all aspects of the market.
However, as ever there are a few notable stories across the sectors. For the first time since 2022, all office segments turned positive. However, there is an increasing gap between secondary buildings in different locations - with the spread between central London and South East at 8%. The Industrial sector is continuing to see yield drift, with the sharpest impact in logistics, at around 1.5%. Retail remains the best performing sector, seeing 1.8% in the quarter, and 7.8% over the year – with Shopping Centres the best performing subsector at 8.7% over the year. While residential has turned negative at -0.9% for the quarter, this is largely driven by leasehold reform impacting ground rent valuations.
As we look to September, while the continued weight of capital geared towards the market remains positive, as long as risk and the cost of borrowing is elevated, we expect liquidity to remain constrained.
For more information, including on the interest rate decision see our Economy and Housing Marketbeat.
