As market sentiment improves, we look at how the Operational Real Estate team are thinking about the year ahead, and where clients can capitalise on momentum in multiple sectors.
29 January, 2026
Despite slowing rental growth, investor appetite for UK residential is expected to increase, underpinned by the compelling supply-demand imbalance. Single family housing will dominate, given lower build costs and longer tenancies, while multifamily faces headwinds from high construction costs and compliance challenges. With the multifamily development pipeline stalled and private sales subdued, UK-listed housebuilders will continue bulk disposals, particularly in London, until interest rates fall or Help to Buy returns. Forward funding of new build schemes will remain a key strategy, securing high-quality, fully compliant assets with the best ESG credentials.
Andrew Smith & Harriet Bantock
Despite headwinds on rental growth and occupancy, UK PBSA demand remains strong, driven by international student growth and a growing 18-year-old domestic population and structural undersupply of housing. Barriers of entry have slowed new delivery, creating opportunities for well-located developments. With 40% of stock pre-2016 and moderating interest rates, owners are seeking liquidity for older assets. The UK dominates European PBSA transactions, with significant portfolios expected to trade in 2026, offering potential to acquire good assets below replacement cost.
Will Kirkpatrick & Marcus Kinsella
Following post-pandemic growth, the UK hotel market stabilised in 2025, with Average Daily Rates up 30-40% in certain sub-markets since 2019. Upcoming rating changes will significantly increase liabilities, prompting operators to drive efficiencies and adopt proactive asset management strategies to protect profit margins. Despite these pressures, demand for well-located single assets remains strong, supported by clearer pricing and selective lender return. Budget and extended-stay hotels will see continued growth, while creative development strategies and adaptive reuse remain key drivers. Institutional interest is expected to rise as gilt yields decline, though limited high-quality stock may constrain volumes.
Despite ongoing staffing challenges and rising labour costs, occupational performance in healthcare remains robust, underpinning rents and investor demand. We will see continued demand for future-proofed care homes and hospital investments, focused on private pay, while NHS reorganisation and rationing play out in the short-term, despite the lengthy waiting lists. We expect to see further WholeCo sales of operating portfolios, particularly in specialist care sectors, alongside potential renewed institutional investment in the specialised supported living sector, which continues to perform strongly at an occupational level.
Portfolio sales in children’s day nurseries are expected, supported by improved occupancy and profitability in 2026. The rapid growth in new schools for pupils with special education needs is likely to slow as the Government seeks to rein in funding requirements with the forthcoming publication of its White Paper, although the market will remain strong this year. The independent schools sector will continue to see mergers, sales and closures as the effects of VAT, and other damaging policies, play out. Universities are expected to face ongoing financial pressures, with more institutions reporting financial deficits at the end of 2025, driving rationalisation, mergers, and potentially the emergence of insolvencies.
Despite persistent caution around consumer spending and rising operational costs, investor interest for leisure remains strong, supporting mid-market activity and refinancing. Owner-operator segments continue to show resilience, with some encouraging mandates in the visitor attractions sector kicking off 2026. In the large corporate space, stabilising debt costs and narrowing buyer-seller gaps point to renewed transactional momentum. Well-capitalised businesses are expected to attract significant interest, and lenders remain active. If economic conditions improve and government support increases, such as the recent scrapping of gaming tax for the land-based bingo sector, 2026 could deliver stronger performance, increased deal flow, and a more positive outlook for the sector.
Overall, operational real estate sectors are expected to continue benefiting from a broad and diverse range of investors, with appetite for varying levels of operational performance and/or real estate that underpins and secures rental cash flows.
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