World events move at great speed. Advisers to real estate professionals need to move just as fast. To do that, we need to understand what the market is doing at any particular time, and as if that is not difficult enough, we must predict what is going to happen next. This article attempts to explain both.
The UK corporate real estate (“CRE”) sector started 2026 with cautious optimism, having navigated a challenging period of higher costs, inflationary pressure and slower capital deployment. The late 2025 performance showed the sector’s resilience, with stronger activity and renewed interest from domestic and overseas investors.
While most commentators factor a degree of uncertainty into their start-of-year projections, few would have anticipated a conflict of the scale taking place currently in the Middle East. The economic consequences are well documented, including higher energy prices, renewed inflationary pressures and supply chain disruption. The key question is what impact these developments are already having, and how they may shape market conditions for the remainder of 2026.
The UK CRE Market as a whole
It is fair to say that the transactional market for UK real estate has been severely impacted by the conflict in the Middle East. While there was a reasonable degree of positivity going into 2026, with some valuation increases, transaction activity has, with limited exceptions, largely been put on pause.
A major factor has been the uncertainty surrounding interest rates, which has, in turn, led to extended deal timetables. Despite this, there are as yet few signs of a distressed market emerging.
The duration of the current disruption and the longer-term effects once it is resolved are harder to predict. However, it would not be surprising if pricing pressure becomes a more significant issue in the medium term.
The sentiment seems to be that investors are in no rush to deploy capital. Many are adopting a wait-and-see approach as the macroeconomic picture continues to evolve, while at the same time exerting downward pressure on pricing in the hope of securing high-quality, blue-chip assets at a reduced price.
We live in a world where there is constant pressure to recycle capital. But maybe that is changing as investors are considering retaining assets until they are able to sell at a price that is right for them. This ties in with the market not being flooded with forced sellers.
This may present opportunities for borrowers as lenders seek to attract customers in a depressed transactional market. We expect the focus to be on refinancings with a pause on new originations.
What about PBSA?
For a (very) long time, purpose-built student accommodation (“PBSA”) has been amongst the hottest of sub-sectors in the UK. Over the past twelve months, things have started to change, and a significant question is whether the negativity (criticism of the student loan system; forecasted lower numbers of foreign students coming to the UK; apprenticeships being pushed; lower occupancy levels, around 85%; schemes that had been announced being scrapped) is a passing fad or a longer-term problem.
Digging deeper into the numbers, it seems that undergraduate numbers are still rising, and on the latest figures available, the number of main applicants for sponsored study visas in the year to September 2025 was also up, year on year. But whilst student numbers seem to be steady, there may be a shift in where students live, with the latest UCAS survey showing an increase of over 4% in the number intending to study from home.
London operates as a distinct market from the rest of the UK. International students account for around half of the total student population in London, nearly double compared to the rest of the UK, and represent approximately 54% of the student accommodation market. As a result, any decline in international student numbers is likely to have a significant impact.
Demand for student accommodation has fallen in the most recent academic years. As a result, students will not feel as much pressure to secure accommodation as early as has previously been the case.
Another factor causing concern amongst the PBSA sub-sector is the Renters’ Rights Act 2025 (the “Act”). PBSA operators who are members of the government-approved ANUK/Unipol Code are largely exempt from the Act’s provisions, as they benefit from “specified status”. This allows them to continue granting common law tenancies, including fixed-term contracts. That said, a degree of uncertainty remains regarding the Act’s wider impact.
Specified status applies only to full-time students at certain institutions, and there is also a transitional period during which existing contracts will continue to fall within the general assured shorthold tenancy regime.
Against the backdrop set out above, it should be noted that various universities have been closing campuses, and there has been an increase in campuses being established overseas, which may further reduce the number of international students studying in the UK.
It is by no means the end for the PBSA sector, and it remains a key focus of investor activity. For all the headwinds, there are new schemes being announced (e.g. in Southwark, a £100m redevelopment and in Bristol, a PBSA-led mixed-use site involving student accommodation, conventional flats together with retail and commercial space). It is possible that we will see closer interaction with universities as they work with owners to produce a model that is affordable to students and delivers returns to owners.
What impact will AI firms have on the market?
Looking at matters from the perspective of the occupier market, it is hoped that, given London’s position as a key market for the technology sector, there will be a great demand for office space in the next 5 to 7 years.
It is encouraging that leading AI firms, such as Open AI, are committing to significant space in London. However, the attraction of working in the capital needs to be balanced with the fiscal position for staff at these firms.
While forecasts for office occupation are promising (based on what happened in the last period of expansion), it should be noted that the tax burden is different now, and as a result, firms must work harder to convince star performers to relocate to or remain in the capital.
Conclusion
Like the rest of the economy, the CRE sector is facing a challenging period. However, the sector has frequently shown its resilience in the last twenty years and with the fundamental features that have made the UK real estate market attractive for investors and developers still broadly in place, it is the view of the author that once the conflict in the Middle East ends (hopefully soon), after a reset period, the UK CRE market will continue to thrive.
