Budget Leak Jitters Unsettling Investors As Flight To Quality Continues

Investors are increasingly focusing on a broadening array of asset classes in London, but prebudget leaks have caused jitters among international investors, according to panellists at Bisnow’s Women Leading Real Estate Summit.

Despite optimism over core capital and occupier demand, economic headwinds could still disrupt growth, speakers told the audience of more than 300 at Bisnow's Women Leading Real Estate event, held at British Land's Dock Shed building in Canada Water.

“I'm still cautious, because obviously we haven't seen the budget,” Mirastar CEO and co-founder Ekaterina Avdonina said.

UK investment in the third quarter was broadly flat compared with the same period in 2024, MSCI data showed, with investors waiting to see what next week's budget holds. 

“We don't know yet what's to come and how the UK government is going to tackle the fiscal budget deficits. And that creates a lot of unease with global capital,” Avdonina said.

London offices are increasingly back on the agenda with investors that have a lower cost of capital, the panellists said. 

Royal London Property Fund Portfolio Fund Manager Stephanie Hacking described herself as “cautiously optimistic” about the impact on real estate of the upcoming budget, largely as she believes the government will try to avoid destabilising the economy.

As a result, Royal London is a net buyer, she said, adding that in terms of disposals, the company is “selling the tail” in terms of secondary, smaller-lot-size assets where it doesn’t see performance in the long term.

“In terms of what we would buy, we're doing central London offices,” she said. “We're looking at best-in-class, larger lot sizes. We're buying beds, so we're doing living, build-to-rent. There's a real need for that.”

The company recently bought the 121K SF 1 Newman Street from Great Portland Estates for £250M, a 4.5% yield, a deal seen as a sign that institutional buyers are back in the market. 

Royal London’s forecast over the next five years is for 6.8% growth, largely driven by income and rents, focusing investors on resilient income and rental growth prospects.

Its forecasts are showing that the highest returning sectors are purpose-built student accommodation, multilet industrial, where there has been significant rental growth historically, healthcare and BTR. Most of the activity it is seeing in central London offices is focused on best in class, she said.

Brookfield Properties Vice President of Asset Management Claire Outram said the real estate giant had seen “welcome stabilisation” in the central London office market, driven by strong occupier fundamentals.

“We've seen really strong rental growth, and a lot of that comes back to the fact that there's a really constrained supply of the best-in-class, top-quality buildings that occupiers are looking for, which has put pressure on rents,” Outram said.

London has the lowest level of new construction since 2010, and the market is at a point in the cycle where the opportunities for new development are huge.

“But at the moment, it's really tricky to make the financials stack up,” Outram said. 

WeWork Head of International Real Estate Phuong Truong said that from an occupier perspective, “there's an absolute flight to quality.”

“Workers aren't just going to come to a nonfunctioning building,” she said. “So when we think about what is attracting workers and what companies are going to want to prelease, it's the amenities, it's the wellness centre, it's whether it's close to retail, that there's a good food offer or, after the day, the pub.”

She said flex operators are seeing a lot of demand as occupiers try to remain agile, especially among new work categories such as artificial intelligence.

“We work on a global portfolio basis and have over 220 AI companies within our spaces,” Truong said. “What's really driving them to be with WeWork is flexibility and our speed to the market. We're able to deliver space really quickly, and what you're also seeing is the ability for any company to scale up.”

For the industrial and logistics market, Avdonina added that she was “seeing green shoots” in what she described as a resilient sector.

“Less and less spec development is coming out of the ground, so I think it creates a really interesting market for 2026 and 2027 where we might see imbalanced supply and demand in the market,” she said.

Avdonina said she expects the return of core institutional capital over the next two years for unleveraged deals, primarily focused on income returns, because capital growth is “very uncertain.”

“Across every sector, people have been focusing on core locations where affordability is still extremely high, so the rental basis is still quite low.”