January 2026
UK Real Estate Market: Overview, Outlook, and Opportunities
Real Estate Index
The UK real estate index is showing a turning point in 2026, underperforming relative to inflation. This clearly reflects the overall deterioration in market conditions.
Number of Real Estate Transactions
Real estate transaction volumes in the UK have been declining for five consecutive years, which is a clear indication of a market recession. The year 2025 proved pivotal in shaping future trends. Although the decline has been modest, it remains highly indicative.
Average Price per Square Meter
The average price per square meter in London exceeds £7,000, significantly outpacing other cities.
Rental Yield
Rental yields continued to grow in 2025. Although the growth rate slowed compared to 2024, it remains at a relatively high level.
Exceptions
Rental yields are generally higher in cities with lower price per square meter. In London, the average rental yield is below 5%; however, in certain districts it can reach up to 10%, while in parts of Manchester, such as M14, yields can reach as high as 12% per annum. By European standards, these represent exceptionally high levels of return.
Market Potential and Outlook
In 2025, the UK real estate market was characterized by stabilization following the sharp cooling observed in 2022–2024. Transaction volumes declined moderately compared to 2024, within low single-digit percentages, confirming subdued demand amid the still elevated cost of borrowing. Overall price dynamics remained flat: most regions experienced stagnation or slight real-term corrections, while nominal prices were supported by limited supply and low seller activity. London and the South East continued to demonstrate relative resilience, albeit without a return to previous growth rates. At the same time, certain previously high-demand areas of London showed a sharp decline in liquidity.
The rental segment firmly established itself as the key market driver in 2025. A shortage of supply, structural underdevelopment in recent years, and a growing share of households priced out of the mortgage market led to further increases in rental rates. Rental yields rose nationwide and, in several regional cities, reached levels that once again made the market attractive for both institutional and private investors. In effect, 2025 marked the transition of the UK from a capital appreciation market to a yield-driven market.
The outlook for 2026 suggests the beginning of a more pronounced cyclical turning point. As monetary policy gradually eases and mortgage rates decline, a recovery in transaction activity is expected, particularly among first-time buyers and upsizers. A sharp price surge is unlikely; however, the most liquid locations may shift from stagnation to moderate growth. The rental market is expected to remain overheated, continuing to support investment demand. Overall, 2026 could become a year of structural transition—from a phase of caution and capital preservation to one of selective asset accumulation amid a stabilizing macroeconomic environment. However, the preconditions for full stabilization remain insufficient.
Ongoing capital outflows from the UK are also expected to have a tangible impact on the real estate market. This trend is likely to become more pronounced in 2026–2027. The year 2025 proved decisive for the UK, with developments taking a downward trajectory. In a number of locations, liquidity is expected to continue declining. A key stabilizing factor will be the activity of institutional investors, driven by relatively high rental yields.
At present, the UK market is largely unsuitable for speculative, early-stage (off-plan) capital growth strategies, with only a very limited number of exceptions. Rising social tensions and shifting economic conditions further undermine market stability. We recommend considering the UK real estate market primarily as a source of rental income rather than capital appreciation.
In 2025, the UK real estate market was characterized by stabilization following the sharp cooling observed in 2022–2024. Transaction volumes declined moderately compared to 2024, within low single-digit percentages, confirming subdued demand amid the still elevated cost of borrowing. Overall price dynamics remained flat: most regions experienced stagnation or slight real-term corrections, while nominal prices were supported by limited supply and low seller activity. London and the South East continued to demonstrate relative resilience, albeit without a return to previous growth rates. At the same time, certain previously high-demand areas of London showed a sharp decline in liquidity.
The rental segment firmly established itself as the key market driver in 2025. A shortage of supply, structural underdevelopment in recent years, and a growing share of households priced out of the mortgage market led to further increases in rental rates. Rental yields rose nationwide and, in several regional cities, reached levels that once again made the market attractive for both institutional and private investors. In effect, 2025 marked the transition of the UK from a capital appreciation market to a yield-driven market.
The outlook for 2026 suggests the beginning of a more pronounced cyclical turning point. As monetary policy gradually eases and mortgage rates decline, a recovery in transaction activity is expected, particularly among first-time buyers and upsizers. A sharp price surge is unlikely; however, the most liquid locations may shift from stagnation to moderate growth. The rental market is expected to remain overheated, continuing to support investment demand. Overall, 2026 could become a year of structural transition—from a phase of caution and capital preservation to one of selective asset accumulation amid a stabilizing macroeconomic environment. However, the preconditions for full stabilization remain insufficient.
Ongoing capital outflows from the UK are also expected to have a tangible impact on the real estate market. This trend is likely to become more pronounced in 2026–2027. The year 2025 proved decisive for the UK, with developments taking a downward trajectory. In a number of locations, liquidity is expected to continue declining. A key stabilizing factor will be the activity of institutional investors, driven by relatively high rental yields.
At present, the UK market is largely unsuitable for speculative, early-stage (off-plan) capital growth strategies, with only a very limited number of exceptions. Rising social tensions and shifting economic conditions further undermine market stability. We recommend considering the UK real estate market primarily as a source of rental income rather than capital appreciation.