Commercial real estate outlook for 2026: where risk and opportunity lie
Friday February 27th, 2026
Commercial real estate is not rebounding in the way previous cycles have conditioned us to expect. It is recalibrating.
With capital markets still adjusting, occupier behaviour evolving and asset performance under sharper scrutiny, 2026 is shaping up to be a year defined by discipline, execution and selective risk-taking.
In a recent discussion with Greg Manson, Director of Real Estate Finance at OakNorth, alongside Oliver du Sautoy, Head of Research at Lambert Smith Hampton, and Simon McCabe, Chief Executive at Scarborough Group International, one message was consistent: momentum is returning, but value will be created differently this cycle.
2025 was a reset, not a rebound
Transaction volumes in 2025 were broadly flat, with a record Q4 driven by a small number of large transactions rather than broad-based recovery. Capital markets stabilised, but yield compression did not return in any meaningful way.
Instead, performance has been driven by rental growth – supported by constrained supply in several sectors and markets.
This matters. In previous cycles, yield compression did much of the heavy lifting. In 2026, returns will rely far more on:
- Income durability
- Rental growth
- Asset quality
- Operational execution
The cycle resembles steady progression rather than dramatic recovery. That changes how investors and developers should think about risk.
Sector allocation matters less. Asset selection matters more.
Return expectations across sectors are converging. The spread between best and worst performing sectors is narrower than in prior cycles.
The implication is clear: 2026 will reward asset-level conviction more than broad sector calls.
That means:
- Focusing on assets with clear repositioning potential
- Backing locations with structural demand drivers
- Underwriting realistic exit assumptions
- Aligning capital structure to business plan
From a development and investment perspective, viability increasingly depends on the interaction between pricing, occupier demand and finance. Where pricing remains uncertain, transaction timelines extend. Where underwriting is robust and aligned, deals move.
This is a market for experienced operators.
Offices: quality and repositioning drive returns
Prime, amenity-rich offices are achieving strong rents, particularly in major city markets. But the opportunity is not limited to new-build best-in-class stock.
Refurbishment is a central theme for 2026. With limited new supply in several markets, repositioning existing assets to meet sustainability and occupier expectations presents a credible route to income growth.
The opportunity lies in:
- Upgrading secondary stock
- Delivering ESG-compliant buildings that are operationally efficient
- Aligning amenity to tenant demand, not over-specifying
Rental growth has been more resilient than many expected. Execution will determine who captures it.
Retail: destination-led reinvention
Retail is no longer a homogenous asset class. Performance depends on ownership structure, flexibility and the ability to evolve.
Destination-led schemes, blending retail, leisure and mixed-use, are better positioned to sustain footfall and rental resilience. Consolidated ownership structures, such as shopping centres, often allow faster repositioning than fragmented high streets.
The opportunity is not in replicating the past. It is in reshaping assets to reflect current behaviour.
What this means for 2026 decision-making
For commercial property investors, developers and lenders, the priorities are clear:
- Underwrite for income, not compression. Returns will be driven by rental growth and asset management, not aggressive yield shifts.
- Back conviction assets. Asset and market selection will matter more than sector positioning.
- Prioritise repositioning. Refurbishment and ESG alignment remain central to unlocking value.
- Expect extended pricing conversations. Market recalibration takes time. Build that into strategy.
- Align financing early. Capital structure should reflect realistic cashflow, not optimistic exit assumptions.
At OakNorth, we work with commercial property businesses across the UK to support well-structured strategies with data-led, flexible lending. In a cycle defined by selectivity, disciplined capital and strong execution matter more than ever.
Talk to us about your 2026 funding plans
If you’re planning an investment, development or refinancing in 2026, we’re always open to a conversation.
