All eyes on the Budget

Considering the upcoming Budget, it is no surprise that there was little change to prime yields in October. Only one sector reported a change, with Industrial Distribution yields moving out 25 basis points (bps) to 5.25% in response to growing investor interest in value-add opportunities focused within the Industrial Multi-let segment. As a result, average yields edged out by only 2bps.

Lack of yield movement is nothing new; average prime yields have barely moved since March in response to global investor uncertainty. This also resulted in a slowing in UK real estate transaction volumes over H1 2025, albeit Q3 volumes were up 5% year-on-year (YoY), bringing year-to-date (YTD) volumes within 8% of that seen over the same period in 2024.

This momentum may have come under pressure over the last few months following the announcement of a late November Budget in September and the subsequent speculation of tax hikes. Looking at Budgets over the last 20 years, there is precedent to suggest that transaction volumes can soften in a Budget quarter (see chart), followed by a post-Budget bounce. This can be amplified during periods of economic uncertainty, as seen in 2015. The bigger questions are around what will be announced, what impact will it have on UK Bond yields and investor confidence, and will it provide enough certainty to drive a pick-up in activity in December and into 2026. We await with bated breath.

Beyond the headlines, does the global economy show signs of resilience?

Global economic growth has slowed over 2025, with the IMF describing the ‘Global economy in flux’ and suggesting ‘prospects remain dim’. In turn, the IMF forecasts for 2026 point to a further slowing in global GDP to 3.1%, with improvements expected in 2027 and beyond. While the outlook is ‘dim’, there has been a consistent underestimation of global economic activity. Essentially, the economy has surprised on the upside and is proving to be relatively resilient.

Looking at Citi’s Global Economic Surprise Index, which measures the gap between economic activity forecasts and actual returns, it has sat above zero since January 2025 (a measure above zero means activity has outperformed forecasts). And the reason for this more pessimistic outlook? Heightened Economic Policy uncertainty, which has hit new highs based on the World Uncertainty Index, as shown on the chart below.

Other indicators of resilience include global equity markets which have recovered from Trump’s tariff shock in April, rallying further with the UK FTSE index currently 12% ahead of where it was in late March 2025.

While there are signs of resilience, economic growth has been subdued and is likely to remain so in 2026, even if it does surprise on the upside. What might provide more comfort to real estate investors is improving certainty around economic policy, which does appear to be materialising in the wake of tariff-related US trade agreements with the EU and China, and the read-through this may have on Government Gilt yields. Although if 2025 has taught us anything, it is to expect the unexpected.

Retail is currently experiencing a resurgence, albeit the focus remains largely on prime destinations and retail parks, with tightening vacancy and upward pressure on rents. This is being driven by a recalibration of omnichannel strategies, which is elevating the role of the store, and a broadening in the occupier base as new concepts and occupier types emerge.

Another element underpinning this resurgence is corporate capital deployment, such as M&A, fund raises, and securing of new debt, as these are typically triggers for store/site expansion. In 2021, £332 billion was deployed into consumer-facing retail, leisure and F&B businesses globally, and has been key in supporting buoyant occupational demand across prime retail destinations.

2025 is set to be another peak with YTD volumes already 13% ahead of 2024 full-year levels. This bodes well for occupational demand going into 2026, although in the case of the UK, this is likely to be shaped by the wider consumer environment and the pressures on occupier margins that have become increasingly acute.

To further discuss the latest insights, please contact the UK Investment or Commercial Research team via the Authors panel