Comm & Get Me: UK Commercial Real Estate Gets a New Lease of Life Going into 2026

The UK commercial real estate market continues to face challenges due to the macroeconomic headwinds.

Despite ongoing volatility, the sector is well-positioned to capitalise on a number of secular market trends.

Although the prevailing uncertainty has also impacted the real estate funds sector, managers with proven track records remain in strong demand.

UK commercial real estate finds its footing…just about

Although green shoots are slowly beginning to emerge in the UK commercial real estate market, sticky inflation and obstinately high interest rates are delaying the sector’s return to health.

However, the US Federal Reserve’s recent rate cut increase global liquidity and bolster investor confidence, which could spill over into the UK market and provide a much-needed boost to commercial real estate.

“Lingering concerns about what will be contained in the Government’s November budget, and its potential impact on bond yields, is also holding back investment into UK commercial real estate” said Will Turner, Director, Fund & Corporate Services, JTC.

According to CBRE, UK commercial real estate investment reached £10 billion in Q2 2025, bringing the H1 total to £21.9 billion, although transactions were comparatively lower quarter on quarter, and the half year total is 18% below that of H1 2024[1]. Over the last 12 months, CBRE added UK commercial real estate has seen inflows of £52.1 billion[2].

The fundamentals underpinning certain commercial real estate sub-sectors are compelling.

Having found itself out of favour after the pandemic, there is renewed appetite for top quality office space, as more companies clamp down on COVID-era Work-from-Home (WFH) arrangements and make it mandatory for people to come into the office once again. CBRE data, for instance, shows that investment in office space hit £10.1 billion over the last 12 months, corresponding to a 19% year-on-year increase. [3]

“Grade A office space is popular at the moment and the market is very squeezed. We are seeing investors acquire well-located Central London office buildings and undertake substantial refurbishment to elevate them to Grade A standards.

Following these upgrades, these properties are being leased at market-leading rental rates, data shows prime headline rents in the West End have risen 14% since 2024 to £160/sq ft.

Meanwhile, prime headline rents in the City jumped 9.4%, and are now at £87.50/sq ft,” said Vicki Allen, Head of Corporate Services – Jersey[4].

She continued: “The demand for Grade A flexible office space is being driven by companies, often those operating hybrid working models, as they seek to encourage more of their employees to return to the office.”

Other sub-sectors are also attracting meaningful investment.

Fuelled by the exponential growth of Artificial Intelligence (AI) and cloud computing, investors are ramping up their exposures to data centres.

“Although data centres are still a fraction of the overall UK commercial real estate market, we are seeing significant investments being made into the sector. Following the recent US state visit, it was announced that US companies would commit an unprecedented £150 billion into technology and AI investments in the UK, of which more than £30 billon is earmarked for UK data centres and AI/Cloud infrastructure,” commented Simon Todd, Group Head of Real Estate, JTC[5].

Retail, a commercial real estate sub-sector which all but collapsed during the pandemic, is also enjoying a renaissance. CBRE noted retail has attracted £8.2 billion over the previous 12 months, an 18% year-on-year jump[6].

“Retail has not been in favour with investors since the pandemic, with interest already on a downwards trajectory beforehand. However, we are seeing renewed interest once again, albeit mostly in so-called destination or leisure retail, rather than traditional retail.

This is partly because the pricing is now at levels where the yields on retail are actually very attractive to a number of investors, particularly where there is a value-add opportunity,” said Turner.

Real estate funds – Getting back on track

While real estate funds globally are currently experiencing challenges in capital raising, the sector continues to hold significant long-term potential and is well-positioned to recover as market conditions improve

Although global real estate deal value grew for the first time in three years, increasing by 11% from $634 billion in 2023 to $707 billion in 2024, McKinsey notes closed-end fundraising was down 28% on $104 billion, the lowest annual haul since 2012[7]. Notwithstanding these choppy fundraising conditions, investors still see potential in real estate funds.

“While it is true that the major name fund managers are still attracting the lion’s share of investor allocations and mid-market names are struggling, firms with niche strategies or highly specialist investment approaches are faring better from a fundraising perspective,” noted Turner.

While track record is a key criterium for winning mandates, so too is the manager’s ability to offer a frictionless investment and reporting experience.

If a manager is still wedded to legacy or analogue technology stacks, then they will struggle to attract investors, irrespective of how compelling their returns are.

“Allocators want quality, real-time data as opposed to simply receiving quarterly investment reports. The managers who can deliver on that will be at an advantage,” said Todd.

In the UK, positive regulatory drivers could also help real estate funds regain their edge.

Turner said the UK Financial Conduct Authority (FCA) is refining the Alternative Investment Fund Managers Directive (AIFMD) to make it more proportionate, relative to firm size.

Under the proposals, larger managers (e.g. those with a NAV greater than £5 billion) will be subjected to the existing AIFMD regime, whereas mid-sized (e.g. NAVs between £100 million and £5 billion) and small firms (e.g. NAVs less than £100 million) will face slightly less onerous compliance requirements.

Although the precise details of the UK’s new look AIFMD are not yet known, experts hope it will ease the compliance burden on the industry.

How to win the mandates

It is a tough market to be running a real estate fund, but the best managers will continue to thrive.

To do so, however, managers need to engage with service providers who can support them with their various operational and regulatory compliance idiosyncrasies, so that they focus their resources on generating returns, and building, and maintaining, client relationships.

JTC combines decades of experience with a deep understanding of real estate funds and property investment structures.

From setup through to ongoing administration, JTC supports managers with their operations, compliance needs and investor reporting.

Learn more about our real estate solutions by visiting our dedicated webpage or contact our experts.

Simon Todd, Group Head of Real Estate

[email protected]

Vicki Allen, Head of Corporate Services – Jersey

[email protected]

Will Turner, Director – Fund & Corporate Services

[email protected]

[1] CBRE – UK Real Estate Investment Volumes Q2 2025

[2] CBRE – UK Real Estate Investment Volumes Q2 2025

[3] CBRE – UK Real Estate Investment Volumes Q2 2025