'A Little Indifferent': Slow Growth Gives Global Investors Little Reason To Buy UK Real Estate

The days when London and the UK were a first port of call for international investors is slowly, steadily slipping away. 

Hopes that 2025 would see a rebound in UK investment volumes faded as the year progressed, and with rates remaining stubbornly high, and growth and productivity remaining stubbornly low, the prospect of 2026 seeing a major recovery seems low. 

For global investors, there is little to get excited about right now when it comes to the UK. 

“We were in the Middle East during the [last month's budget] announcement, an area that has typically favoured the UK and held quite large portfolios of London real estate, but I suspect that going forwards those holdings may not be as large,” Tristan Capital Partners senior partner Simon Martin said.

"What has historically made the UK and London popular was that it is a large, deep and liquid market with high-quality product, seen as a gateway to Europe, a pro-growth market compared with the EU, and light touch on tax and regulation.

"Aside from the first point, I’m not sure you could argue for the other three, and that’s making international capital a little indifferent."

According to MSCI’s latest figures, deal volumes through the first nine months of the year rose in four of the top five European country markets, with only the UK seeing a drop compared with 2024.

For the first three quarters of 2025, total deal volumes just topped £35B, down 8% on the previous year.

This is due to a slowdown in apartment and hotel trades, while acquisitions in the office, retail and industrial sectors are either flat or up on the year to date, with some new sources of capital emerging, including from Japan and Australia.

Martin warned that politicians appear to have forgotten that the UK is competing for capital across fixed income, equities and real estate and that international investors make up a huge proportion of investment in the UK, in real estate and beyond. 

“We’re a pan-European business, equally at home deploying capital anywhere," he said. "London will always be part of the conversation given its reputation as a safe haven and first call for dollar-denominated investments, but a lot of international capital is more focused on other parts of Europe."

Oxford Economics issued a bearish note on the UK economy last week, saying fiscal and political risks will remain elevated and the UK lacks a sustainable growth driver.

The only upside that could be taken for real estate is that, if inflation drops next year, the Bank of England could cut rates from the current 4% to 3.25%, which would help make UK real estate more attractive to investors. 

Oxford Properties Group Executive Vice President, Europe and Asia Joanne McNamara said she remains concerned that while investors typically view the UK favourably, higher interest rates relative to Europe mean that combined with the lack of growth boosters, European deals will “screen better."

"Overall, markets were marginally favourable [about the budget], but the sector still needs help, and that's the piece around growth," she said.

"We've got quite a lot of government interference around residential in particular. I fear that if we don't have a growth focus, the market will be negative from an international standpoint.” 

McNamara would like to see simplification of the rating system, of planning systems, and a review of stamp duty, she said. Most of Oxford's investment committees comment on how the frictional cost of doing real estate deals is much higher in Europe and the UK than anywhere else, she added.

“I'm asking for simplification then growth.”

She is also concerned about a lack of support for research and development, which, despite government claims, is not being evidenced from Oxford Properties’ perspective, she said.

“In conversation with tenants in the life science sector, there's so much uncertainty about the UK market that people aren't making decisions and that should be an area that the UK can outperform, but it doesn't feel like that's going anywhere,” McNamara said.

London and the UK of course still have bright spots. London remains a gateway city, with one of the largest real estate investment markets anywhere in the world. It was voted the top investment and development destination in Europe in the Urban Land Institute and PwC's Emerging Trends in Real Estate Europe report in November. 

And the underlying balance of supply and demand in most real estate sectors is sound. This is not a typical real estate downturn.

“Call it what you want, the inflation shock, the Truss shock, whatever," CBRE IM UK Head of Research and Insights Dominic Smith said. "We didn't have the two things that you normally get at the end of a cycle, which is a recession hitting occupier after a speculative supply boom. We didn't have either, which is why rental growth has continued to be positive across the board."

In addition, he said prospects across the UK and Europe compared well with APAC and North America, albeit that the UK carried heavier risk than mainland Europe, with growth prospects narrowed between asset classes.

“Giving our house view, the big message was around pivoting towards Europe and the UK," Smith said. "For global capital, I think you're probably thinking overweight Europe and people tend to go to the markets that they're familiar with. People have been coming to the UK, to London, for years. Investors know the market, the benefits of the legal framework, so I’ll think they lean towards that."

Savills Director, Commercial Research Mat Oakley also bemoaned the lack of a growth agenda and speculated that real estate prospects seemed much less aligned with interest rates than they were in the past.

“It doesn't seem to matter. It's not feeding through into the risk-free rate of return, and so it's not feeding through into the property yield. It is a very uncommon recovery phase of the cycle. It means it's still a target-rich environment. If you've got money looking for high yields in 2026, brilliant, you haven't missed the window,” Oakley stressed.

Savills Head of Global Cross Border Investment, Capital Markets Rasheed Hassan pointed to investment from Japan, Australia and a more active Singaporean market as evidence that global capital flows were still targeting the UK but said the diversity of asset buying meant this sometimes went under the radar.

“It's there, just not in the same volumes, but it's been backfilled by other money," he said. "I think we're going to see European money, but anyone who has to hedge will find it challenging because there's a negative premium thanks to interest rates in Europe moving much quicker than the UK. But if you're an unlevered investor, UK yields are looking interesting."

While most asset classes remained relatively resilient in 2025, Oakley points to London offices as having led the recovery.

“The tide has firmly turned on negativity," he said. 

He expects that to continue in 2026, citing yields too attractive to ignore.

“You can buy core for value-add prices in some markets. And I think some of the spreads in pricing just look illogical,” he said.

Persistent interest rate levels mean that asset appeal has to be linked to a growth agenda, according to McNamara, who said Oxford Properties also liked office prospects. She added the right retail should continue to improve, plus single-family residential.

“The great thing is there are opportunities for everyone, regardless of what sort of investor you are," Oakley said. "There's nothing wrong with a boring recovery."