The mainstream investment market is showing a modest improvement in both transactional volumes and prices, but the rate-cutting cycle is not feeding through into the bond market or property pricing.

While transactional volumes in the mainstream investment market were up a respectable 13% year-on-year, it was in our auctions rooms where commercial activity experienced a surge. Purely commercial transactions rose by 55% to £188m in 2025, and overall commercial and mixed-use sale volumes were up by 35% year-on-year, bringing the total to £320m.

Retail remained the most popular commercial asset class in the auction room in 2025, accounting for 37% of the commercial value traded. This was in part due to the very attractive median yield of 10.6%, but also mirrors a wider acceptance across the UK markets that good retail was recovering from the squeeze on the cost of living in terms of both tenant demand and rental growth.

Generally, the occupational story across all of the main commercial property sectors remains robust, based around low levels of development activity and normal levels of tenant demand. This has continued to deliver higher-than-normal prime rental growth across all sectors. However, the last year has shown us how selective tenants are on location, with prime buildings in secondary spots proving much harder to let than would be normal in this phase of the property cycle.

Investment market sentiment is generally lagging the occupational market

Funnily enough, it was the lack of distress post-Covid that held transactional volumes in the mainstream investment market back in 2025. This created a target-poor environment for the opportunistic buyers who typically kick off any recovery phase of the cycle. This, combined with the less-than-attractive spread between some property yields and the all-in cost of debt, goes a long way to explaining why the recovery in investment volumes and prices has been more muted than normal.

Many institutional investors still have legacy issues with their portfolios to deal with, and this has left an open playing field for more fleet-of-foot private investors to jump in and capitalise on weak pricing across the whole of the commercial property market.

2025 was also characterised by a higher-than-normal level of uncertainty about domestic and international political changes, and this uncertainty kept some investors out of the market, as well as keeping sovereign bond yields high.

There is no doubt that our economy has its challenges, and we expect that economic growth will be weaker in 2026 than in 2025, but this is not unique to the UK. Our peers across Europe and Asia are equally challenged by demographic change and weak productivity growth.

Even when we turn to things that the Chancellor can affect, the story isn’t particularly negative, with the UK having the second-lowest debt-to-GDP ratio in the G7.

2026 should see a rising recognition that the UK is in a comparatively good place, and the immediate reaction of the bond markets to the latest Budget suggests that they are happy that it was fiscally responsible. While the local elections in May will undoubtedly lead to feverish speculation around the incumbent government’s future, we believe that the outlook is more stable than it was a year ago and that businesses and investors should be more capable of making balanced decisions than they were six or twelve months ago.

Rental growth to remain strong in the most undersupplied locations

The higher-than-normal prime rental growth we have seen over the last five years has not been about a boom in tenant demand but a lack of supply. So, unless we see a surge in development completions in 2026 (or a rise in tenant exits), the undersupply and rental growth will be sustained.

The office market remains our most favoured pick for investors in 2026, with steady (but highly location-focused) tenant demand, a lack of new supply, and better-than-normal rental growth. The definition of prime has changed and is more location-specific than ever. Indeed, in some cases, we believe that a perfect location can compensate for a less-than-five-star building, something that should enable developers to value-engineer plans to a better return.

Retail property remains in the growth phase of a traditional cycle, with vacancy rates in dominant locations down to cyclical lows. This is delivering demonstrable rental growth, though we do expect that to soften in 2026 as retailers have to adapt to higher operating costs. Industrial remains popular with all investor types, though vacancy rates remain high and rental growth has cooled. In common with the other main sectors, location is key in the logistics sector.

THE OUTLOOK FOR 2026 (AND BEYOND)

The most interesting thing about the commercial property market at the start of 2026 is the lack of recovery in pricing that we saw in 2024 and 2025. Yields, even on prime, remain high, and in some cases spreads between locations are throwing up some interesting questions about where mispricing could lead to inward yield shift.

In the retail and office markets, yields are in line with their GFC peaks, and in the office market, the spread between central London and the regions is wider than it has ever been.

The factors that held back a V-shaped recovery in 2025 are still mostly present in 2026. We do expect several more cuts in the Base Rate, but are less confident that these falls will feed through into the gilts market and hence borrowing costs.

We expect that income will remain the most important component of total returns over the next five years, and this will mean that careful stock selection will be more important than ever in terms of capturing the best of the recovery phase of this cycle.

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_{Read the articles within Auction Outlook and Review 2026 report below}