UK Real Estate Navigates Uncertainty in the First Half of 2026, Says CBRE

Office

Occupier demand remains strong, with Central London take-up expected to broadly match 2025 levels, supported by technology, media and telecommunications occupiers, particularly AI firms. By the end of H1, AI-related leasing activity totalled 0.7m sq ft in Central London. Constrained development pipelines and limited Grade A availability continue to drive rental growth, with prime City rents reaching £95 psf (+12% year-on-year) and Mayfair/St James's reaching £200 psf (+18%). Prime rents have also increased in Birmingham and Manchester, while regional markets are benefiting from growing defence and cybersecurity demand.

Living

The living sector continued to face challenges to new development due to elevated financing and construction costs. However, there have been significant sales of stabilised income-producing assets in the first half of 2026, particularly for London multifamily housing. Investment activity in the Purpose Built Student Accommodation sector has been focussed on refurbishment and value-add strategies. Strong rental demand, diminishing future supply pipelines and government-backed housing initiatives are expected to support investment activity, with living sector investment volumes forecast to reach more than £13bn by year-end, an increase of 4.1% year-on-year and a new record-high for the sector.

Industrial & Logistics

Demand from third-party logistics operators (3PLs), manufacturers and retailers continues to underpin activity, with 3PL occupiers accounting for 45% of H1 2026 take-up. Constrained development activity will limit new supply entering the market, supporting CBRE's forecast for a modest decline in vacancy rates during H2. While the development pipeline grew 6% in H1 to 19.9m sq ft, the increase was driven primarily by build-to-suit schemes, which now account for two-thirds of space under construction.

Data Centres

Data centres continue to be one of the strongest-performing sectors of UK real estate. Demand from hyperscalers, neocloud providers and AI occupiers is expected to drive record take-up in London, exceeding 200MW for the first time. While London accounts for 83% of UK data centre supply, land and power constraints are encouraging expansion into adjacent markets. Demand is increasingly focused on AI-enabled capacity, with operators prioritising locations that offer power availability, connectivity and speed to market.

Retail

Retail sales have outperformed expectations despite softer consumer confidence. Retail parks continue to outperform the wider sector, supported by low vacancy rates and strong occupier demand, while prime Central London locations and leading shopping centres benefit from constrained supply and rental growth. CBRE expects retail sales growth of 1.8% in 2026, broadly in line with last year.

Operational Real Estate

Investor interest remains strong across healthcare, hotels and self-storage, with infrastructure and insurance capital increasingly targeting the sector. Leisure transaction activity continues to be constrained by limited stock, although improving pricing is attracting institutional investors back to sectors such as leisure parks and cinemas. Hotel investment exceeded £2.9bn in H1 2026, up 119% year-on-year, with London continuing to attract significant domestic and international capital.

Science & Innovation

Demand from AI, defence technology and advanced research businesses is broadening the occupier base beyond traditional life sciences organisations across London, Oxford and Cambridge. H1 2026 take-up reached 570,000 sq ft, the third-highest six-month total on record, highlighting growing demand for lab-enabled and innovation-focused space. Occupier diversification is increasingly becoming a structural driver of activity across the sector.