The UK real estate market enters 2026 with a sense of cautious optimism. After 2025’s expected momentum failed to materialise, real estate leaders are navigating an environment where interest rates have stabilised, funding has become more accessible and demand for high-quality, operational assets remains strong. Yet this optimism is tempered by economic concerns, persistent tax pressures and political uncertainty.

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Key themes shaping the UK real estate outlook in 2026

Growth forecast – but investment barriers continue to define the outlook

More respondents predict growth compared to last year, but longer-term expectations have been reset. Economic volatility remains the biggest constraint, with 43% of respondents ranking it as their primary investment barrier. While fundamentals, including access to funding, are improving, real estate businesses are navigating the cumulative impact of economic conditions, additional tax burdens and political uncertainty.

Read our real estate market outlook in the full report

Shifting demands reshape real estate asset class opportunities

The living sectors continue to lead the way, supported by long-term demographic and supply-demand imbalances. Data centres have emerged as a growth asset as digital technology and AI usage grows throughout the economy. For now, investors still prefer operational assets with strong relevance, predictable income and scalability, while offices and retail have started a gradual path to recovery. Our respondents expect steady value growth across residential and commercial assets.

Read about the top investment picks in the full report

Diverse sources of capital strengthen real estate funding confidence

Funding conditions have eased due to interest rate cuts and a diversification of capital sources available to businesses. Respondents rank UK investors, family offices and private equity among the top funding sources. Of our private equity backed respondents, 93% state that private equity brings value beyond financial engineering. Europe remains a core source of overseas funding, while sentiment from the Middle East has softened in response to UK tax pressures.

Read about sources of funding in the full report

Targeted incentives could unlock stalled development

Viability pressures continue to limit new real estate and construction developments, with rising costs, regulation and tax changes putting the brakes on progress. Respondents point to Stamp Duty reform, business rates changes and better‑resourced planning departments as the Government interventions that would have the biggest impact. Longer-term stability and targeted levers could also help move projects forward.

Read about government policy, viability and tax in our full report

Technology and innovation centre stage in real estate’s evolution

Technology investment is scaling rapidly, as businesses move from experimentation to practical application. Just under a quarter (24%) of businesses already use AI and a further 33% plan to implement this year. Smart building technology is the innovation set to most enhance user experience. With digital expectations rising across the industry, can firms turn innovation into meaningful performance gains while balancing risk?

Read about technology and AI investment strategies our full report

The economist's outlook for the real estate industry

These are challenging times for real estate and construction firms. Construction insolvencies remain 20% above the pre Covid average and were the highest of any sector last year. It’s therefore unsurprising that respondents highlight finance and economic risk, regulation and compliance as boards’ main concerns.

The survey’s cautious outlook is also understandable in a sector that demands stability. Persistent economic and political uncertainty, higher taxes, rising business rates and the UK’s low growth continue to weigh on project viability, funding and investment decisions. Global investors still regard the UK as an attractive market, but regulatory pressures and elevated energy costs are limiting activity.

Yet, there are emerging signs of optimism and further resilience. Sentiment across the UK economy has strengthened since the Autumn Budget, including among consumers. The Real Estate 360 Survey reflects this improved mood, as do tentative gains in the Construction PMI, although that’s still at historically weak levels. Firms are investing in digital infrastructure and maintaining steady access to funding. Plus, while the broader economy remains the primary barrier to investment, fewer businesses cite economic volatility and recession risk as their main challenge.

The UK Economic Outlook 2026 also points to firmer conditions for real estate and construction over the next year. Interest rates are expected to fall to around 3% in 2026, inflation to dip to 2% and financial conditions to stay supportive. Lower medium-term borrowing costs will help bring down financing costs and mortgage rates. That should support progress towards the Government’s expanded housebuilding target.

For now, the gap between improving economic sentiment and tougher operational realities is keeping the sector cautious. This reflects the ‘new normal’ that real estate and construction businesses continue to navigate.

Tom Pugh, Chief Economist, RSM UK and RSM Ireland