Investment Quarterly | Q3 2026

Market Overview

UK commercial property investment proved relatively resilient in Q3 2026, despite continued geopolitical tensions and wider economic uncertainty. Investor activity remained selective, with demand focused on high-quality assets offering resilient income streams and sectors supported by strong occupier fundamentals.

A total of £10.1bn was invested in UK commercial property in Q3 2026, down 5% on the previous quarter but 3% above the same period last year. While volumes eased slightly, quarterly investment remained above £10bn for a fourth consecutive quarter, pointing to some stability in capital deployment despite continued investor selectivity.

The rolling annual investment total edged up to £49.0bn, from £48.8bn in Q2, and was 7% higher than a year earlier. This marked its highest level since Q1 2023. Although activity remains below the longer-term 10-year average, the latest figures suggest a gradual recovery in investment volumes, even as market liquidity remains uneven.

London & The Region

London accounted for around 33% of total investment, excluding multi-regional portfolio deals, down from 35% in Q2 2026. Offices and alternative assets attracted the most investment in London, while industrial investment fell compared with the previous quarter. Overseas investors accounted for 75% of capital invested in London in the third quarter, up from 46% in Q2 2026.

Regional markets, meaning the UK outside London, accounted for 67% of investment excluding multi-regional portfolio deals. The South East saw the highest level of investment outside the capital, with around £508m purchased, followed by the East of England with around £455m.

Sector Performance

Sector performance was mixed in Q3 2026. Industrial investment came closest to its five-year quarterly average, at just 6% below, while alternatives and retail were 18% and 19% below average, respectively. Offices recorded the largest shortfall, at 29%, although volumes were considerably higher than a year earlier. Alternatives nevertheless remained the most active sector by investment volume, reflecting sustained interest in resilient income streams and long-term fundamentals.

Office

Office investment totalled approximately £2.3bn in Q3 2026, down 9% on the previous quarter but up 34% year-on-year. Volumes remained 29% below the five-year quarterly average. Larger transactions continued to support activity, with five deals exceeding £100m, including one above £200m but none above £500m. Investors continued to prefer high-quality offices and assets offering opportunities for refurbishment or redevelopment.

Most of the biggest deals were in London. KKCG Real Estate acquired 1 St James’s Square for £291m, with a net initial yield of 4.8% quoted, while Lone Star Funds bought 90 Whitfield for £110m, with a net initial yield of 5%.

Investment outside London was weaker, but several notable regional transactions took place. In Birmingham, a joint venture between Forma and Patron Capital Advisors acquired 2 Snow Hill for £62m, while Martley Capital Real Estate Investment Management bought 35 Bull Street for £60m.

Industrial

Industrial investment totalled £2.8bn in Q3 2026, up 48% from £1.9bn in the previous quarter. Volumes were also 35% higher year-on-year and just 6% below the five-year quarterly average. One of the largest deals was the £398m purchase of an eight-asset logistics portfolio across England by a joint venture between KKR and Mirastar. In another joint venture, Farran Investments and GoldenTree Asset Management acquired a portfolio of 20 multi-let industrial estates and development land assets for £193m, reflecting a net initial yield of 6.3%.

Retail

Retail investment totalled just under £1.6bn in Q3 2026, up 51% from the previous quarter and 4% year-on-year, although still 19% below the five-year quarterly average. Several large deals involving prime retail assets and shopping centres supported volumes. Hammerson acquired a 50% interest in the Arndale Centre in Manchester for £218m, while Supermarket Income REIT purchased a portfolio of three Tesco and Sainsbury’s supermarkets for £118m.

Alternatives

Investment activity in alternatives moderated in Q3 2026. Investment across alternative sectors totalled around £3.4bn during the quarter, down 43% from the previous quarter and 18% below the five-year quarterly average. Nevertheless, alternatives remained the largest sector by investment volume, with activity supported by several major deals across the BTR, student and later-living sectors.

Among the largest deals in the third quarter was the acquisition of 866 single-family rental homes across Southern and South East England for £400m by Border to Coast Pension Partnership. Another notable transaction was Aermont Capital's acquisition of Park Holidays UK, comprising 56 holiday parks across Britain. The transaction had an enterprise value of £768m but was excluded from investment volumes due to its corporate structure.

Elsewhere, CareTrust REIT bought a portfolio of care homes across England and Scotland for circa £168m, while Aboria and Partners Group acquired a five-asset PBSA portfolio across England for circa £165m.

Overseas Investment

• Overseas investment in UK commercial property totalled £4.8bn in Q3 2026, down 16% quarter-on-quarter and 17% below the five-year quarterly average. It accounted for 48% of total investment, below the 10-year average of 51%, highlighting continued selectivity among cross-border investors.

• US investors remained the largest source of overseas investment in Q3 2026, with identified acquisitions totalling approximately £2.3bn. Notable transactions included Greystar's £500m acquisition of a 904-unit BTR portfolio and KKR and Mirastar's £398m acquisition of an eight-asset logistics portfolio.

• European investors remained active in Q3 2026, led by Czech investor KKCG Real Estate's £291m acquisition of 1 St James's Square in London's West End. Other notable transactions included Swiss-based Partners Group's joint £165m acquisition of a student accommodation portfolio and Spanish investor Ponte Gadea's £150m purchase of 219–229 Baker Street, highlighting continued European interest across office and residential assets.

• Asian investors maintained a presence in the UK market, with Singaporean investment reaching £134m, following no recorded activity in Q2, while Japanese investment surged to £332m, compared with £50m in the previous quarter.

The outlook from Ali Rana, Head of National Investment

The UK investment market remains constrained rather than distressed. Elevated gilt yields and borrowing costs continue to weigh on investor sentiment, while fiscal uncertainty and geopolitical tensions are adding to caution. Transaction volumes remain subdued, with deals taking longer to complete and buyers adopting a more disciplined approach to pricing. Prime assets have generally proved more resilient, but secondary stock, particularly where significant capital expenditure or occupational risks are involved, requires a clearer risk premium to attract investment.

Retail remains arguably the most settled of the main commercial sectors. Retail warehouses, supermarkets and stronger shopping centres continue to attract capital, supported by rebased rents, relatively low vacancy and dependable income streams. However, liquidity remains concentrated on assets with strong trading fundamentals, while weaker high streets and shopping centres requiring substantial capital expenditure face greater pricing pressure.

Industrial occupational demand remains resilient, although investment pricing continues to be disciplined. Institutional investors and private equity firms remain active, particularly in logistics assets and multi-let estates offering opportunities for rental growth or value creation through proactive asset management. However, elevated financing costs are making tighter yields more difficult to justify, with buyers increasingly selective on location, asset quality, income security and asset management potential.

The office market remains highly polarised, with occupational fundamentals generally stronger than investment activity. In Central London, demand for best-in-class space and constrained development supply continue to support prime rental growth, while capital values remained broadly flat in Q3. Regional offices face a more challenging investment environment, although prime assets in stronger cities continue to attract interest, particularly those offering secure income and strong sustainability credentials. Across both markets, secondary assets face greater scrutiny over refurbishment costs, letting risks and future liquidity, reinforcing the widening divide between prime and secondary stock.

Looking ahead, elevated financing costs, geopolitical instability and uncertainty surrounding fiscal policy are likely to keep investment activity relatively subdued. Inflationary pressures, including those associated with higher energy and transport costs, could also limit the scope for further interest-rate reductions. Against this backdrop, debt-funded buyers remain sensitive to financing costs, while cash investors continue to benchmark property returns against comparatively attractive bond yields.

Nevertheless, the foundations for a recovery remain in place. Capital is available and investors are willing to transact, but there is little urgency to deploy it at current pricing. Greater economic and fiscal clarity, easing geopolitical pressures and lower financing costs would help restore confidence and unlock activity. For now, the recovery looks delayed rather than derailed, with correctly priced, high-quality assets best positioned to attract capital.