Bright Spots in Real Estate Markets

Against a backdrop of elevated geopolitical risk and tougher financial conditions, investment in traditional property sectors has stalled in the past few years both in terms of deal values and volumes. A combination of interest-rate and inflation volatility, and global political unrest and uncertainty saw investment dipping to a ten-year low in 2023, with a relatively cautious pick-up throughout 2024 and 2025.

However, signs of renewed confidence are emerging. Investors appear to be selectively re-engaging with core real estate markets as structural demand drivers and stabilising economic conditions begin to restore momentum. The prime office sector is experiencing a steady resurgence, with resilient occupier demand and limited prime supply driving record-high rents in major European cities. The growth of e-commerce and supply chain modernisation have contributed to a surge in investment in logistics assets across Europe.

Simultaneously, data centres have emerged as a standout growth sector, consistently outperforming more traditional investment assets. Fuelled by substantial global investment and the rapid growth of artificial intelligence, data centres have fast become part of our critical infrastructure. With an estimated USD6.7 trillion in global data centre investments projected to be required by 2030 to meet global demand, the sector’s expansion shows little sign of slowing.

A rebound in activity in the city office market?

After a turbulent period for the city office market defined by the COVID-19 pandemic, the widespread adoption of flexible working, and a challenging economic environment, occupier and investor interest in city office space is rebounding. This trend is driven by a renewed appetite for well-appointed, future-proofed workspaces.

Stable office vacancy rates, amid growing demand, have further limited the availability of quality office space, leading to increased rents across Europe. London’s West End recorded the highest growth in prime rents in 2025, with an average 17% year-on-year increase, followed by Paris and Frankfurt, both of which saw year-on-year prime rent increases of 13%.

Despite the booming office market, investors remain cautious, with many believing that a significant price correction is required. This carries the risk of credit events being triggered on leveraged properties, where loan-to-value ratios may no longer stack up.

We expect occupier demand to persist as employers encourage a return to in-person working culture, and seek sustainable, wellbeing-focused spaces. This positions city markets in the UK and Europe for continued resilience heading into 2026.

Private equity’s role in logistics

The European logistics real estate market has remained similarly buoyant amid sectoral challenges, with logistics assets now accounting for 22% of total European real estate investment, up from 13% in 2018.

The market trajectory is promising. Underpinned by structural drivers including the growth of e-commerce and supply chain modernisation, as well as global trade conflicts, US tariffs and general economic volatility, demand for shorter supply chains and proximity to end markets is increasing.

Against a backdrop of constrained supply, elevated rents for prime logistics space across key European cities – London recording the highest (EUR27.50/sqm/month), compared with the second highest in Zurich (EUR16.50/sqm/month) – reflect persistent demand in metropolitan areas, including the booming “last mile” asset class.

Private equity firms are the most active players in UK logistics, attracted by the prospect of stable yields and the sector’s structural resilience. These players are driving a trend of consolidation in the sector, with scalable platforms poised to excel as the market reshapes. Blackstone’s GBP470 million acquisition of Warehouse REIT in September 2025 is a stand-out example of private equity’s strategic focus on resilience and scale.

We expect momentum to continue as investors seek scale and strategic positioning in a growing market and strive to compete through consolidation.

Data centres take centre stage

As a market similarly dominated by private equity funds, with sponsors estimated to account for nearly 90% of the global data centre M&A market, data centres have defied the trend of steady growth seen across traditional real estate markets. This is despite power availability challenges and planning delays, which are expected to remain the predominant constraints on the sector. In 2026, UK data centre revenues are forecast to meet USD18.2 billion, and the value of the Europe-wide market is projected to reach USD97.3 billion by 2030.

From a private equity perspective, data centres align with key investment criteria, providing stable and predictable long-term cash flows backed, particularly in the case of hyperscale data centres, by customers with strong credit ratings such as Amazon, Google and Meta. They also offer technology-backed growth potential, whether through ramp-ups in power connections or advances in chip technology and cooling solutions, designed to maximise returns on investment.

The sector’s expansive growth, largely driven by such investment, has positioned the data centre market as a strong investment proposition in its own right. This transformation has given rise to several trends. Focusing on the UK market, while private equity remains the dominant force in data centre investment, we are observing increased interest from institutional real estate investors.

The emergence of institutional real estate investors into the UK data centre market

To date, sponsor-led investments have primarily been through infrastructure funds, rather than real estate funds. As the market becomes more familiar with the asset class, and examples of transactions involving stabilised sites and platforms, at an asset-level and through M&A, become increasingly common, interest from traditional real estate investors is growing. Early examples include Allianz’s acquisition of a minority stake in Yondr and The London Fund’s co-investment alongside Macquarie in Virtus.

We expect to see the trend continue – particularly with the growing focus on customer contract / lease terms and a desire to align them more closely with “triple net” (or, in UK terms, “effective FRI”) lease terms. This means that the occupier bears all risk and cost associated with the asset, including repair and maintenance costs, business rates and charges. Along with the annual, index-linked rents that are already a feature of most data centre leases, this will bring asset deals further into alignment with more established investment-grade assets such as warehouses and core office buildings.

What lies ahead?

The outlook for 2026 is promising. We expect continued growth in the city office and logistics sectors. In city offices, investor focus is shifting to prime assets with strong sustainability credentials; we can expect sustained rent increases propelled by limited demand. Despite regulatory complexity, rising costs and labour shortages, structurally-driven demand and investor appetite for resilient, income-producing assets will underpin optimism in the logistics sector.

Data centres will continue to face significant developmental challenges as the sector continues to suffer from limited grid capacity and long connection queues in the face of increasing demand. Land constraints present a further challenge and may prevent the UK from reaching the levels of investment and development seen in the likes of China and the US. Nevertheless, as the internet of things continues to expand, and reliance on access to low latency, high performance technology increases exponentially, it is clear that data centres are not only here to stay but will continue to provide compelling opportunities for investors and developers.

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