The UK property market outlook 2026 has been rewritten at the halfway mark, and the story is now one of income rather than capital growth, according to CBRE’s Midyear Review published in August
The firm began the year forecasting 1.2 per cent GDP growth in its January outlook. That view, CBRE says, “shifted dramatically” at the end of February with the onset of the US-Iran conflict, which pushed Brent crude above 90 US dollars a barrel for much of the spring.
The result is a hotter inflation path. CBRE now expects CPI to peak at around 3.5 per cent year on year in Q4, against its earlier forecast of a return to the 2 per cent target, with rates on hold for the rest of 2026. The Bank of England held Bank Rate at 3.75 per cent at its July meeting.
Unemployment is forecast to hit 5.7 per cent by year end, while 10 year gilt yields, having peaked at around 5 per cent, are expected to moderate slightly before stabilising.
Volumes dip, but the income story strengthens
Investment volumes totalled £23bn in the first half, an 8 per cent decline on H1 2025, according to CBRE. Yet beneath the headline, living and offices both grew volumes by 7 per cent year on year.
The CBRE UK Monthly Index shows all property total returns of 2.5 per cent over H1, with income return contributing 2.8 per cent. Prime yields for every property type except retail parks now sit within 25 basis points of their 10 year highs, which CBRE describes as “a buying opportunity at current prices”.
Debt remains available too. Some 72 per cent of respondents to CBRE’s European Lender Intentions Survey expect to increase originations in 2026, a confidence that persisted even after the conflict broke out. That liquidity echoes the renewed appetite for commercial property as interest rates ease reported across the wider market.
The prime versus secondary divide is stark. Outer London and M25 office values fell 4.8 per cent over the half, while Central London values were flat, extending the pattern seen in the UK commercial property rebound that favoured best in class stock.
Occupiers hold the line, with AI doing the heavy lifting
Occupational markets have proved resilient. City of London prime office rents reached £95.00 per sq ft in Q2, up 12 per cent year on year, while Mayfair and St James’s hit £200.00 per sq ft, an 18 per cent rise, according to CBRE.
AI related firms leased 0.7m sq ft of Central London offices in H1, already more than double their full year 2025 total. Logistics vacancy held at 7.13 per cent, and London data centre take-up is forecast to reach a record 212MW this year, pushing vacancy to an all time low of 5.5 per cent.
Retail supplied one of the report’s most striking numbers. Oxford Street vacancy has fallen to just 0.4 per cent, the lowest in 20 years, and average prime Central London retail rents rose 7.6 per cent year on year in Q2. Hotels, meanwhile, drew £2.9bn of investment in H1, up 119 per cent.
What this means for investors
The message for portfolio investors is that this is an income cycle, not a capital growth cycle, and asset selection matters more than sector selection. Prime, well located stock is compounding rental growth while secondary assets continue to reprice.
With entry yields near 10 year highs and construction costs choking new supply, patient buyers are being paid to wait. The risks sit in the macro picture, from gilt market volatility to the policy direction of a new Prime Minister, themes that will also shape the broader UK housing market outlook for 2026. CBRE expects prime outperformance to continue through H2. On the evidence of the first half, betting against quality looks the riskier trade.
