Market Radar Europe: Tariff tensions, trade deals, and UK market trends

Greenland tariff fears eased in latest Trump U-turn

Announced on Thursday (22nd) during the World Economic Forum (WEF) in Davos, US President Donald Trump’s decision to back down from imposing tariffs on eight European countries following a NATO agreement on Greenland helped ease market tensions.

Following a slip earlier in the week, this move alleviated concerns over a potential trade war, boosting risk appetite across Europe, including a 1.2% rise in the pan-European STOXX 600. 

UK shares saw a broad-based rally on Thursday, with the FTSE 100 up 0.7%, the FTSE 250 rising by 1.37%, and the property sector experiencing particularly strong gains, with real estate stocks climbing 1.9%, alongside a 1.9% rise in construction and materials stocks. 

Meanwhile, the EU is on track to sign a significant trade agreement with India. Speaking in Davos, European Commission President Ursula von der Leyen described the pact as the "mother of all deals," potentially creating a combined market of 2 billion people and accounting for nearly a quarter of global GDP.

BTR and SFH lead UK resi recovery

Despite concerns over the impact of recent tax reforms, CBRE's UK Real Estate Market Outlook for 2026 presents cautious optimism, with the UK economy expected to experience softer growth, with decreasing inflation and falling interest rates, which should benefit real estate capital markets. 

The living sector, particularly Build-to-Rent (BTR) and Purpose-Built Student Accommodation (PBSA), is poised to see continued demand under these conditions. 

Both CBRE and Knight Frank report that UK BTR investment in 2025 totalled just under GBP 4.7 billion, a 9.1% decrease from 2024 but still 23% above the ten-year average, signalling a gradual recovery in the market. 

Notably, Single Family Housing (SFH) investment surpassed Multifamily Housing (MFH) for the first time, with SFH seeing a significant rise of 56% to reach GBP 2.7 billion, while MFH investment dropped by 16% to GBP 1.97 billion.

Although the total number of BTR homes completed in 2025 dropped by 20% compared to 2024, Knight Frank forecasts a modest recovery in 2026, with around 24,000 new completions expected.

Recent developments in the UK residential market include Long Harbour securing a GBP 66.8 million debt facility with Barclays to support its Single-Family Housing Fund's expansion and the launch of a joint venture between Zenzic Capital and Jensco Group’s to invest in SFH, beginning with a GBP 31 million deal for 125 homes in Peterborough. 

Meanwhile, Vistry and Kier Property received approval for 289 new homes at Great Haddon, while Vistry also partnered with Citizen to build 60 affordable homes in Oldbury, and Asset Capital secured GBP 22.7 million from Paragon Bank for a PBSA scheme in York.

UK CRE and capital markets build momentum

Further insights from CBRE's UK Outlook for 2026 focus on the commercial sector and capital markets, with high-quality office and logistics spaces expected to see steady demand, while a surge in data centre development driven by AI and infrastructure investments. Although the supply of premium office spaces remains tight, optimism surrounds prime markets where rental growth is anticipated. 

Capital markets are predicted to continue growing, supported by rising rental values and sustained cross-border capital inflows. Additionally, sectors such as healthcare and life sciences are expected to thrive, bolstered by capital investments and government backing, particularly in facilities like primary care centres and private hospitals.

London’s office investment market showed strong performance in 2025, according to Colliers, with a 52% increase in investment activity, totalling GBP 9.47 billion. This growth was particularly driven by a surge in Q4 2025, where GBP 3.28 billion in deals were recorded, the highest since Q3 2022. Domestic and European investors led the charge, accounting for 77% of the total activity. 

Of particular note, the number of GBP 100m+ transactions more than doubled from 2024, and with eight such deals already under offer in 2026, there is strong momentum as we head further into the new year. 

European construction sector poised for growth

ING reports that the European construction sector is set to recover in 2026, following a decline in 2024 and stagnation in 2025. Forecasted production growth of 1.5% reflects a positive outlook, driven by increased contractor confidence, rising housing permits, and growing infrastructure investment. 

While higher interest rates and building costs have impacted residential and non-residential construction, the infrastructure sector has benefitted from EU funding, especially in energy and digital infrastructure. 

Markets like Spain and Germany are expected to see significant growth, while France and the Netherlands are projected for slower recovery.

The residential market also shows signs of recovery, with more building permits and a shift towards rising housing prices, though housing shortages persist in urban areas. Rising wages and stable building material costs are making new projects more viable, and the EU Affordable Housing Plan, aiming to add 650,000 homes annually, will boost momentum. 

Commercial real estate remains strong in healthcare and renovation, but office construction is continuing to struggle due to hybrid work trends.
 

---

Look out for a new edition of the GRI Institute's Market Radar Europe next week!