Beit Capital: Continued momentum in the UK property market in 2026
A report by Bitk Capital, the investment arm of Kuwait Finance House, on the UK real estate market, indicated that by the start of 2026, experts expect European real estate markets to enter a new cycle, with returns primarily linked to income. This is attributed to the continued rise in central banks’ key interest rates, compared to the ultra-low rate environment that prevailed between the global financial crisis and the “COVID-19” pandemic.
The report noted that these expectations followed 2025, which was characterized by a strong recovery following rate-hiking cycles. The market saw investments totaling 245.5 billion euros across Europe, with investment rates rising 15% year-on-year in Europe and 9% in the UK. The UK also recorded investments worth 26.6 billion pounds in the fourth quarter of 2025, marking the highest quarterly level ever recorded.
The report forecast that transaction volumes in 2026 would maintain their momentum, exceeding those observed in 2025, driven by adjusted valuations, a narrowing gap between buyers and sellers, debt maturities, and portfolio rotations by institutional investors.
The report highlighted that the US-Iran conflict caused global interest rates to widen significantly due to inflation concerns surrounding global oil supply chains, reversing any expectations of rate cuts and increasing central bank rate hike expectations amid periods 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 levels well above 4%.
The report recalled that at the start 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 somewhat more neutral, given that inflation was considered under control, with interest rates expected to remain at 2%.
The situation could worsen in the short term during periods of market volatility, as investors adopt a “wait and see” approach.
Despite this, rising interest rates create opportunities for debt platforms with strong origination skills, investment discipline, and risk structuring capabilities, allowing for periods of substantial returns.
The report observed that purpose-built student accommodation in the UK continues to suffer from a supply shortage, exacerbated by the growing influx of 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 the largest investment sector in Europe and is expected to stay the primary driver of investment, as population growth and the resulting housing shortage continue to push rents higher.
The report pointed to a 0.4% downward revision in Eurozone GDP forecasts, while UK consumer price index forecasts for 2026 were raised by 1.5% due to the ongoing conflict, leading to a 0.5% downward revision in UK GDP forecasts.
Despite UK inflation expectations for 2027 rising by 0.5%, GDP remained steady at 1.3%, indicating a limited impact on medium- and long-term growth.
He added that by the end of 2025, market pricing reflected expectations that the Bank of England would cut interest rates by 50 basis points during 2026 (two cuts of 25 basis points each), bringing the interest rate to 3.25%.
Al-Qarir concluded that it is too early to determine how geopolitical events in the Middle East will fully affect the activity and performance of European real estate investment in 2026. However, indicators confirm that rising inflation and restrictive monetary policies will push many investors to adopt a more cautious approach, potentially delaying investment decisions until the future outlook becomes clearer and market sentiment improves.
Real estate debt investments are relatively benefiting from the high interest rate environment driven by inflationary pressures, due to their ability to generate increasing returns amid rising rates. Real estate debt also provides strong capital protection through lending secured by actual real estate assets, alongside growing capacity to shift toward safer real estate sub-asset classes.
