London's Resurgent Real Estate Allure: Verdict from the GRI Chairmen’s Retreat Takeaways - UK 2026

Market Optimism and Stability

The general sentiment within the real estate sector has undergone a significant sea change, moving from the deep uncertainty of previous years toward a more optimistic outlook.

Senior leaders at the Retreat noted that the industry appears to be on an upswing rather than a downswing, with a majority of participants expressing a positive view for the coming nine to twelve months.

This improved mood is largely driven by a return to market stability and a sense that the industry is entering a normalised environment where real estate fundamentals have reasserted their importance.

London's Resilience

Several factors contribute to the London real estate market’s ability to maintain momentum despite broader economic challenges, including its status as a global safe haven, particularly for Japanese and Middle Eastern capital.

This international inflow provides a layer of liquidity that many other UK and European cities lack, allowing the market to remain active even when domestic UK institutional LPs are sidelined.

Another primary pillar of this resilience is the city’s lack of supply in virtually every asset class. Occupiers continue to seek high-quality space, and with limited new development over the past five years, landlords are seeing steady rental growth, which protects capital even when yields are under pressure.

London is currently seen as a prime buying window for value-add investors. These investors are resiliently underwriting deals with the belief that although core capital is currently absent, it will return in two to three years to provide an exit at a premium.

Unlike other European regions where lending has entirely frozen, there is a visible uptick in transaction volume in London, and even signs of increased activity in its office market.

Furthermore, there is a distinct appetite among equity investors to take on risk within the London market, driven by rent trajectories and monetisation strategies that are perceived as significantly more transparent than those in other jurisdictions.
 

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European Capital Flows

There has been a notable shift in global capital allocation, with Europe increasingly viewed as a primary destination for investment. While US capital often remains domestic, there is significant interest from Asian pension funds and Middle Eastern insurance companies reallocating toward European opportunities.

Within the continent, Germany has emerged as a top priority for many investors, followed closely by Ireland, Spain, and the UK. However, the market remains selective; money is flowing into the region, but investors are prioritising assets with proven track records rather than speculative ventures.

Japanese Capital Flows into London

The influx of Japanese capital is set to be a defining trend for London in 2026, driven by a combination of domestic pressures in Japan and a search for stability.

A primary driver is a strategic pivot away from the unsettling US market amid trade turmoil and economic uncertainty, leading the reallocation of funds towards more transparent markets like London.

Japanese institutions are leveraging low domestic borrowing costs to fund UK acquisitions. With City of London yields around 5.25% and West End yields at 3.75%, the spread remains attractive when financed with debt raised on Japanese balance sheets.

Unlike previous waves of foreign investment, current Japanese flows are deeply rooted in long-term relationships. Major developers have established a steady stream of deals rather than a sudden, volatile wave.

Notable deals include Mitsui Fudosan’s GBP 1.1 billion investment in the British Library Extension and Daibiru Group’s GBP 169 million purchase of Capital House, marking their London debut.
 

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The Living Sector

The persistent, widespread shortage of housing across major European capitals continues to underpin the sector's fundamentals despite macroeconomic challenges. Meanwhile, investors are increasingly looking at operational real estate, including student housing and mixed-use assets, to diversify income streams and achieve better cap rate compression.

The UK's living sector stands out as a major area of interest to real estate investors, as investment volumes reached GBP 5.3 billion in 2025, with a significant surge in the final quarter fundamentally resetting the market’s definition of scale.

Within this space, single-family housing (SFH) has emerged as a dominant driver, accounting for nearly 60% of all build-to-rent (BTR) investment in late 2025. This asset class is considered particularly attractive as it typically avoids the complex planning and Building Safety Act delays that frequently impact high-rise multifamily developments.

UK Affordable Housing Target

The UK’s 300,000-unit target for affordable housing is largely considered unrealistic due to significant structural barriers such as planning issues and bureaucratic red tape.

The technical complexity of modern residential developments, combined with rising construction costs, has made it increasingly difficult to price risk accurately and maintain the financial viability of affordable schemes.

A major hurdle has been the Housing Revenue Account (HRA) limit, which traditionally made social housing expansion unviable for many councils once they exceeded 200 homes. While the government recently raised this threshold to 1,000 homes to spur building, the underlying over-complicated bureaucracy remains a concern for developers.

While the UK remains a preferred investment destination, capital flows are currently prioritising high-yield living sectors like purpose-built student accommodation (PBSA) and single-family housing (SFH) over traditional affordable housing, which offers more restricted margins.
 

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Emerging Technology

The discussion regarding the impact of emerging technology at the Retreat was centred on the dual nature of Artificial Intelligence (AI) as both a driver of significant productivity gains and a primary source of market uncertainty.

AI currently means different things to various stakeholders, and the rapid pace of development makes the long-term effects on the real estate sector difficult to predict with certainty.

This ambiguity has created a notably tentative environment for recruitment, particularly for recent graduates, as firms struggle to define their future staffing needs or identify which roles may eventually be displaced by automation.

Regarding real estate demand, while there is uncertainty regarding how AI may change specific building requirements, the prevailing view is that it will ultimately benefit owners who position their assets to meet the evolving needs of occupiers.

Digital Infrastructure

The "power race" driven by AI has fuelled a surge in interest in data centres, although this remains a sector with exceptionally high barriers to entry due to the immense cost and complexity of securing power.

Notably, this investment remains highly concentrated, with a small group of major players raising the vast majority of capital in a market that is currently dominated by US-focused strategies.
 

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Private Credit and Value-Add Strategies

In the current market environment, private credit and value-add strategies have evolved into the primary engines of liquidity for European real estate. As traditional core capital remains largely sidelined, private credit has transitioned from a niche alternative to a cornerstone of the financial system, frequently delivering high-grade returns that were historically associated with much higher-risk equity positions.

Back Leverage

A critical component of this dominance is the strategic use of back leverage, such as loan-on-loan facilities, which fund managers are employing to enhance high single-digit returns into the double-digit range.

This shift is supported by a growing collaborative ecosystem where credit funds partner with banks to maintain sector exposure while benefiting from more favourable capital treatment. 

Value-Add Strategy

Simultaneously, the prevailing value-add strategy involves capitalising on the current "buyer’s market" to acquire high-quality assets at corrected prices. These investors are focusing on regional selectivity and asset repositioning - particularly within the living and logistics sectors - while underwriting deals with the specific expectation that core capital will return to the market by 2027 or 2028 to provide a profitable exit.

In the UK, value-add strategies are primarily targeting sectors defined by strong structural demand and significant supply imbalances, with the living and hospitality sectors serving as the principal recipients of this capital.

The UK hospitality sector has seen a resurgence in confidence, driven by resilient international demand and the prospect of stabilised cash flows following targeted renovations. Value-add investors are eyeing underperforming assets for rebranding and modernisation, often integrating emerging technologies to protect margins against rising labour costs.

Beyond London, these strategies are increasingly being applied to productive regional cities where regeneration projects and strong local employment bases offer higher yields and greater capital growth potential than saturated core markets.

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Regulatory Barriers

Geopolitical instability, inflation, and the threat of a deep recession in the West continue to threaten real estate returns, however, the biggest obstacle to Europe’s investment progress is considered to be over-regulation.

Europe is frequently perceived as "tripping over its own red tape," and these barriers are particularly acute in the development sector, where the combination of planning backlogs and the technical complexity of modern buildings makes development risk exceptionally difficult to price accurately.

UK Regulatory Landscape

In the UK, regulatory barriers and extensive backlogs in local planning authorities are frequently blamed for systemic delays that stifle development. These challenges are particularly acute in London, where the increasing technical complexity of modern buildings and ambitious affordable housing quotas can make many development projects financially unviable.

To address these inefficiencies, several legislative reforms are currently being implemented or proposed. The Planning and Infrastructure Act 2025 aims to streamline the delivery of national projects, while specific changes to the Housing Revenue Account (HRA) have been introduced to unlock council housebuilding by reducing the bureaucratic burden on local authorities.

However, the sector is also facing a tightening of standards through the Building Safety Act, including new requirements for second staircases in high-rise residential blocks and a multi-billion pound levy to address historic building defects, and the Biodiversity Net Gain (BNG), requiring developers to deliver a measurable 10% increase in the ecological value of a site.

Additionally, the Renters' Rights Act 2025 is set to fundamentally shift the dynamics of the private rented sector, adding another layer of regulatory compliance for institutional landlords and investors to navigate.

These cumulative viability pressures often make projects - particularly smaller sites - financially unviable in the current high-inflation environment.
 

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These insights were shared during GRI Institute’s Chairmen's Retreat Takeaways UK 2026 roundtable, co-hosted by Spencer House Partners, with participation from Audrey Klein (Spencer House Partners), Lorna Brown (Birchwood Real Estate Capital), Michael Kovacs (Castleforge Partners), Omar El Glaoui (Citi Group), and Shiraz Jiwa (The Valesco Group).