Cautious optimism from UK real estate firms, despite mixed outlook

The real estate and construction markets in the UK remain cautiously optimistic, despite ongoing barriers to investment. However, just under half suggest that continued economic volatility could become a problem as 2026 rolls on.

Spiralling costs and supply chain disruption have caused huge issues for the UK’s real estate and construction segments. London is now the world’s most expensive city to undertake the fitting out process – for example, in a knock to the UK capital’s attractiveness as a business hub. Analysing fit-out costs across 50 global locations, the researchers found that in London the average high specification project cost is £4,671 per square meter. The second most expensive location is New York on £4,470, followed by Zurich on £4,299, and at San Francisco £4,293.

As companies put off projects amid economic uncertainty, the UK has one of the highest rates of builder collapses in the G7, and some of the worst payment times – resulting in poor output, and low cash-flow throughout the supply chain. In recent weeks, two large construction firms have entered administration. Warwick Ward, a major construction plant dealer, was placed into administration in December after 55 years of trading, followed by Caldwell Construction – which provides groundworks services for several national housebuilders and employs more than 400 people – less than a month later.

However, a new report from RSM has found that despite this, many in the sector are keeping the faith. Polling over 270 business leaders in real estate for its ‘Real Estate 360’ paper, 64% said they still felt optimistic about market prospects – all things considered, a minor drop from 68% last year, despite persistent headwinds. Meanwhile, only 16% said they felt pessimistic about the outlook for the sector.

Stacy Eden, UK head of real estate at RSM, commented, “These figures highlight the attractiveness of real estate to UK investors and family offices, with total returns in excess of 7% per year.”

Remaining issues

Despite optimism in the market, headwinds do still persist into 2026 and beyond. The biggest barrier to investment in the sector is ongoing economic volatility, cited by 43% of respondents. But even so, when it comes to the longer-term outlook, 36% said they felt ‘very optimistic’ about prospects for the real estate sector over the next three years, rising from 33% the year before.

This may be because the rate of lending is now beginning to fall – with 19% saying access to funding is becoming easier, up from 16% the previous year. This could also be why the preferred options for funding in the real estate sector have shifted in the past year, with private equity no longer considered the most readily available source of funding, down to 30% from 38% the previous year. Instead, UK investors and family offices take the lead as the most readily available funding source at 34%, closely followed by high street banks at 33%. 

Eden added, “Our survey results point to cautious optimism – sentiment that could help tip the balance in favour of a gradual recovery throughout the year. But barriers to growth won’t help. UK growth forecasts over the next three years are mediocre, with concerns around potential future tax rises, and minimal productivity growth in the UK. Additional tax restrictions were the second biggest barrier for 39% of respondents. This has been driven by the continued high and growing rates of taxation that the real estate and construction industry must deal with.”