Colliers Q4 UK Real Estate Outlook: Retail returns forecast to peak at 10.8% in 2026 as industrial demand rises
Colliers’ Q4 UK Real Estate Investment Forecasts report points to a cautiously optimistic outlook for 2026, as easing inflation and stabilising borrowing costs support renewed confidence across key sectors.
UK GDP growth slowed through 2025 after a strong start, with output slowing to just 0.1% in Q3, impacted by weaker global demand and cautious business sentiment. Inflation remains above target and while interest rates have fallen by 125bps since August 2024, financial conditions are still tight. Persistent price pressures and modest productivity growth point to a challenging backdrop, but stabilising borrowing costs are expected to underpin selective opportunities across real estate sectors in 2026.
Oliver Kolodseike, head of economic research at Colliers, said: “Despite slower economic growth and inflation remaining above target, we expect stabilising borrowing costs to support renewed confidence in UK real estate. Investors will need to remain selective, and right now they are choosing safe bets, properties that can deliver steady returns even in uncertain times. Retail parks and logistics hubs are leading the way, prime offices are back in focus and living sectors like student accommodation remain popular thanks to consistent demand.”
Retail is predicted to remain the standout performer next year. Total returns are forecast have reached 9.1% in 2025, expected to peak at 10.8% in 2026, led by shopping centres and retail warehouses. Rebased rents, improving footfall and strong occupier demand are driving recovery, while vacancy rates across retail warehouses remain at historic lows. Investment activity has been resilient, with £1.6bn transacted in Q3, and although this Is the lowest quarter in almost two years, year-to-date volumes remain ahead of 2023 and 2024.
The industrial sector continues to show resilience, with occupier demand surging in Q3 and warehouse take-up hitting a three-year high of 10.2m sq ft. Investment activity also remained robust, with £2.2bn transacted in Q3, showcasing confidence in the sector. Looking ahead, total returns are forecast to rise from 6.6% in 2025 to 6.9% in 2026, as demand for high-quality, strategically located logistics facilities continues.
Prime office rents are predicted to keep climbing, with London averages approaching £94 per sq ft and regional markets such as Bristol and Leeds posting record highs. Vacancy rates are tightening, and total returns are forecast to improve from 5.9% in 2025 to 7.2% in 2026, as investor appetite for value-add and sustainability-led strategies is growing. Investment activity reached £1.5bn in Q3, despite volumes remaining below long-term averages.
The living sector continues to attract strong investor interest, with investment volumes in purpose-built student accommodation surging to £1.4bn in Q3, well above trend. Colliers expects confidence to remain high into 2026, supported by consistent demand for student housing.
Access the full Q4 UK Real Estate Investment Forecasts report here.