Aberdeen Investments Q3 Real Estate Houseview: capital markets re-opening but investment strategy will be the key differentiator in coming years

• Capital markets are becoming more active as pension pooling, master trusts, listed real estate and cross-border capital are reshaping to boost liquidity

• Retail, industrial and selective offices lead the opportunity set, but dispersion by asset quality and location remains high

• Living retains its deep demand drivers, but near-term performance is mixed and affordability is a growing consideration

In our Houseview, UK all-property total returns are forecast at 5.4% over the next year and 7.0% annualised over three years, with income doing the heavy lifting near term. Across Europe, the equivalent three-year view is 7.6%, rising from 6.3% in year one as capital growth gradually reappears alongside stable income. [1]

We do not expect the recovery to be linear. MSCI data show annual UK real estate returns softened to 6.1% in May as valuers absorbed higher inflation and rate expectations. [2] But our Houseview is that the second half of the year and 2027 could prove more dynamic as long-term capital, listed-market signals and cross-border buyers re-engage.

Anne Breen, Global Head of Real Estate at Aberdeen Investments, said:

“The story for the rest of 2026 is not simply about resilience. The more interesting change is that the capital sitting on the sidelines is approaching a critical mass and is starting to have a reason to move again. Equity valuations remain lofty; bonds are navigating an uncertain policy environment and the two are also highly correlated. Real estate’s role as a stronger diversifier and a return generator from here is highly evident to us.

“LGPS pooling, the growth of pension master trusts, a more dynamic listed real estate market and the return of global cross-border capital are all changing the shape and scale of investment demand. That does not mean the market becomes easy, but it does make it more liquid, more competitive and more interesting than it has been for much of the past two years. The positivity backing other private asset classes such as infrastructure and private debt is starting to spill back into physical real estate too.

“The winners in this environment will be investors who can move beyond broad sector calls and underwrite the right assets, in the right submarkets, with a clear plan for income growth, capex and exit strategy. Investors are likely to be rewarded for taking conviction, but only where it is backed by disciplined asset selection and asset management execution.”

Capital markets are beginning to re-open

Transaction markets remain subdued, but Aberdeen Investments think the balance is shifting. UK volumes were £9.2 billion in the first quarter of 2026, down 15% year on year, while  just £6.2 billion had been recorded in the second quarter to date. In Europe, first-quarter volumes rose 14% year-on-year before slowing again in Q2, leaving activity to May at a five-year low. [3]

That caution is now being challenged by a broader set of capital-market catalysts. In the UK, LGPS pooling and the emergence of larger pension master trusts are increasing the scale and sophistication of domestic institutional demand. Listed real estate is also becoming more active after a long period of dormancy, while global investors are again screening the UK and Europe for repriced assets, secure income and value-add opportunities.

For Europe, the capital-raising backdrop is already turning more supportive. Recent INREV and ANREV surveys show $41 billion was raised for European strategies in 2025, with 70% from long-term pools such as insurers, pension funds, sovereign wealth and government institutions. We expect this stickier capital to show up more clearly in bidding processes across risk strategies.

Macro backdrop: less shock, more clarity

Our base case is that the UK avoids a sharper economic slowdown, with growth likely to remain subdued at around 1% in 2026. Depending on developments in the Middle East and medium-term weather patterns associated with El Nino, inflation should still ease gradually back towards the 2% target as earlier energy pressures fade. Andy Burnham’s rise to become PM looks inevitable and provides a new layer of uncertainty for markets, although this does not constitute a new phenomenon for the UK government. 

We expect the Bank of England to hold rates at 3.75% through the rest of 2026, with cuts resuming in 2027 if inflation and second-round effects remain contained. For real estate, that delays the immediate rate tailwind, but lowers the risk of renewed tightening.

In the Eurozone, our forecasts point to GDP growth of 0.8% in 2026 and a much stronger 1.8% in 2027. Inflation is expected to fall from 2.5% in 2026 to 1.7% in 2027, giving the European Central Bank room to pause after its June move to 2.25%. 

The result is a more investable environment for the asset class: real income is growing, rental growth remains intact across a wider range of sectors and valuations look more attractive in this macro environment.

Offices: on the hunt for the right assets in the right locations

UK offices remain highly polarised. The sector returned just 2.8% over the 12 months to May, but central London is behaving differently: West End and Mid-Town offices returned 6.8%, supported by rental growth of 12.5% in the West End and 5.1% in the City in the first quarter. [4]

Liquidity is the constraint that concerns us most today. UK office investment was just £1.1 billion in the second quarter, the weakest three-month period in more than 20 years, highlighting the gap between prime occupational strength and investor caution towards weaker, obsolete or capex-heavy assets. [5]

Across Europe, headline vacancy is above 14%, but the best locations remain tight. [6] Paris CBD, Amsterdam and Madrid are supply constrained, while office space under construction has fallen around 35% to its lowest level for a decade. [7] We think a return to supply-side equilibrium is on the horizon. 

We expect selective office strategies to work where assets combine location, sustainability, manageable capex and clear tenant demand, while recognising that emerging AI-related demand risks are moving quickly and cannot be ignored.

Industrials and logistics: softer today, structurally stronger tomorrow

UK industrials have performed well for two years, but trade policy and Middle East tensions have softened demand. The sector still returned 6.7% over the 12 months to May, and we expect regional industrials to modestly outperform London and the south east, after a very strong run in rental growth.

Our longer-term UK industrial conviction remains intact. Supply is more balanced but supportive: standard industrial vacancy is tight at 4.7%, and larger logistics demand remains above pre-Covid levels. [8]

In Europe, returns are forecast at 8.8% per annum over three years, backed by constrained development, and policy back demand drivers including reindustrialisation, nearshoring and defence spending. [9] We favour multi-let and light industrial over typical big box logistics.

Retail: income resilience and scarcity remain powerful drivers

We expect retail to keep outperforming, supported by essential spending, resilient income and constrained supply. In the UK, returns were 8.4% over the 12 months to May, led by retail parks, supermarkets and convenience formats. [10]

Our strongest conviction remains in supermarkets, grocery-anchored retail parks and well-let convenience. UK retail park vacancy is close to 2%, supporting longer-term rental growth. [11]

The outlook is more mixed in discretionary segments, where cost pressures and weaker confidence are more evident. Performance remains highly dependent on asset quality, tenant mix and positioning.

Across Europe, retail returned 7.3% in the year to March. High yields, steady real rental growth and very low vacancy support performance. Our retail park forecast remains bullish at around 9.4% annualised over three years, an outlook that warrants greater attention from investors.

Living: structural demand, but more selective underwriting

Living retains its deep demand drivers, but near-term performance is mixed. UK residential returns slowed in the first half of 2026 as capital values slipped and PBSA repricing and ground-rent reform weighed on performance.

Affordability is a growing consideration. Mortgage rates at 75% loan-to-value have risen to 4.7%, supporting rental demand but limiting further rental growth potential in the longer term, especially if real wage growth weakens. We are more positive on single-family rental due to operational efficiencies and stronger rental growth potential. 

Across Europe, living remains the largest capital destination, with €29 billion of residential deals in the first half of 2026 and 29% of INREV asset-level portfolios. We remain favourable, but returns now require deeper underwriting of affordability, regulation, operating costs and local supply pipelines, alongside careful use of higher-return strategies.

Outlook: a more dynamic market, not a risk-free recovery

Across the UK and Europe, our Houseview is more constructive as macro conditions stabilise and capital markets improve. UK all-property total returns are expected to rise from 5.4% in year one to reach 7.0% annualised over three years. In Europe, returns are forecast to move from 6.3% in year one to 7.6% annualised over three years. [12] Income remains the anchor, but we believe steady capital growth can return under our macro base case.

The important shift for the next 12 months is that liquidity may start to fire again and create greater investor competition. Domestic institutional consolidation, pension master trusts, listed real estate activity and cross-border capital could create a more competitive market for the right assets, even if weaker assets remain difficult to finance or sell.

Aberdeen believes investors should gradually re-risk, but not indiscriminately. The next phase of the cycle is likely to be defined by asset selection, capital discipline and the ability to use changing capital-market conditions to secure assets with durable income and credible growth plans.

[1] Aberdeen forecasts. unlevered, non-risk-adjusted, local currency, absolute returns, excluding transaction fees June 2026
[2] MSCI UK Monthly Property Index to May 2026
[3] RCA / MSCI
[4] MSCI UK Monthly Property Index to May 2026
[5] RCA / MSCI
[6] MSCI Quarterly European Property Fund Index
[7]  JLL
[8] CBRE
[9] Aberdeen forecasts. unlevered, non-risk-adjusted, local currency, absolute returns, excluding transaction fees June 2026
[10] MSCI UK Monthly Property Index to May 2026
[11]  CBRE
[12] Aberdeen forecasts. unlevered, non-risk-adjusted, local currency, absolute returns, excluding transaction fees June 2026

Ends

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Notes to editors

About Aberdeen Investments:

Aberdeen Investments is a specialist asset manager that focuses on areas where we have both strength and scale across public and private markets, including credit, specialist equities and real assets. 

Our teams collaborate across regions, asset classes and specialisms, connecting diverse perspectives and working with clients to identify investment opportunities that suit their needs.

As at 31 March 2026, Aberdeen Investments managed c.£385bn on behalf of clients, including insurance companies, sovereign wealth funds, independent wealth managers, pension funds, platforms, banks and family offices.

www.aberdeeninvestments.com

About Aberdeen Group

Aberdeen is a leading Wealth & Investments group, working to help millions of customers and clients turn their financial goals into reality. As at 31 March 2026, Aberdeen managed and administered c.£550bn of client and customer assets across its three core business, interactive investor, Adviser and Investments.

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