Beit Capital: Continued momentum in UK property transactions
A report prepared by Bitk Capital, the investment arm of Kuwait Finance House, on the “UK Property Market,” forecasts that transaction volumes in the British real estate market will maintain their momentum throughout 2026, exceeding those recorded in 2025.
The report noted that the market experienced a strong recovery following interest rate hiking cycles, with investment rates rising by 9%. The United Kingdom attracted investments worth £26.6 billion in the fourth quarter of 2025, marking the highest quarterly level ever recorded. Targeted real estate sectors are led by office spaces and student housing, alongside residential properties. The following are the details of the report.
At the beginning of this year, experts predicted that European real estate markets would enter a new cycle, where returns would be primarily linked to income. This is due to the continued rise in central banks’ base interest rates compared to the ultra-low interest rate environment that prevailed between the global financial crisis and the “COVID-19” pandemic.
These expectations followed 2025, which was characterized by a sustained strong recovery after interest rate hiking cycles. The market saw investments totaling €245.5 billion across Europe, with investment rates rising by 15% year-on-year in Europe and 9% in the United Kingdom. The UK also recorded investments worth £26.6 billion in the fourth quarter of 2025, the highest quarterly level ever recorded.
Transaction volumes are expected to maintain their momentum this year, surpassing those recorded in 2025, driven by adjusted valuations, a narrowing gap between buyers and sellers, debt maturities, and the rotation of ownership from institutional investors.
The US-Iranian war has led to a prolonged period of conflict in the Middle East, causing global interest rates to widen significantly due to inflationary concerns surrounding global oil supply chains. This has reversed any expectations of interest rate cuts and increased expectations for central banks to raise rates during a period of growing market volatility.
The 3-month SONIA (Sterling Overnight Index Average) futures curve, which was expected to remain below 3.50% over the next 24 months, rose by 0.75%, reaching a level significantly above 4.00%.
At the beginning of 2026, markets generally anticipated an easing cycle by the Bank of England due to falling inflation and a weak labor market, following its 25 basis point rate cut to 3.75% in December 2025. Meanwhile, the European Central Bank’s outlook was more neutral, given that inflation is considered under control with interest rate expectations remaining at 2.0%.
The situation may worsen in the short term during periods of market volatility, as investors adopt a “wait and see” approach.
Nevertheless, higher interest rates create opportunities for debt platforms with strong issuance capabilities, investment discipline, and risk structuring abilities, allowing for periods of substantial returns.
The supply of office space has reached its lowest level since 2020. Many city center locations are experiencing a shortage of supply and low vacancy rates, particularly for Grade A offices, while administrative office jobs are seeing annual growth.
Student housing, particularly in the United Kingdom, continues to suffer from a shortage of supply, a deficit exacerbated by the growing influx of both international and domestic students. English-taught programs across Europe remain in high demand, and this sector is expected to benefit from rising rental growth.
The residential sector remains Europe’s largest investment segment and is projected to stay the primary driver of investment, as population growth and the resulting housing shortage continue to push rents higher.
Despite UK inflation forecasts for 2027 rising by 0.5%, GDP growth remained steady at 1.3%, indicating a limited impact on medium- and long-term growth.
By the end of 2025, market pricing reflected expectations that the Bank of England would cut interest rates by a total of 50 basis points in 2026 (two cuts of 25 basis points each), bringing the interest rate to 3.25%.
While it is still too early to fully assess how recent geopolitical events in the Middle East will affect European real estate investment activity and performance this year, indicators suggest that rising inflation and restrictive monetary policies will prompt many investors to adopt a more cautious approach, potentially delaying investment decisions until the outlook becomes clearer and market sentiment improves.
Early-year forecasts indicated that European real estate markets are entering a new cycle where returns are primarily driven by income. Developers are likely to prioritize income-focused assets over relying on immediate capital gains from investment transactions.
Real estate debt investments are relatively benefiting from the high-interest-rate environment driven by inflationary pressures, thanks to their ability to generate increasing yields as rates rise. Furthermore, real estate debt offers strong capital protection through lending secured by actual real estate assets, with growing potential to shift toward safer real estate asset sub-sectors.
