Demand depth meets limited stock

The UK macroeconomic backdrop remains uncertain, with CPI easing to 2.8% in April 2026 but still above target, and the outlook shifting more cautiously as higher energy costs feed into inflation expectations. The Bank of England has held the base rate at 3.75%, although ongoing Middle East tensions have increased the likelihood of renewed upward pressure on prices over the near term.

Despite this, investor sentiment remains constructive. A deep pool of capital, particularly for prime assets, continues to underpin the market, although activity is constrained by limited vendor willingness to test pricing. This supply-side hesitation remains the key friction point, with uncertainty weighing more on sellers than buyers, creating a counter-cyclical dynamic.

Transaction volumes (inclusive of retail, industrial, offices and hotels) reflect this imbalance, with £6.9 billion invested in Q1 2026, down 6.6% year-on-year and a third below the Q1 decade average. Pricing has nevertheless remained resilient, with prime yields broadly stable. Outward movement has been limited to regional offices (+25bps), while shopping centre yields show a slight outward bias but remain at c.7.25%.

Occupational markets remain supportive, with office take-up broadly in line with long-term averages, reinforcing investor confidence in income durability, while in logistics, take-up remains above pre-Covid norms despite a more normalised demand backdrop. In retail warehousing, structurally low vacancy and resilient, needs-based occupier demand continue to underpin rental growth prospects and support the investment case, while in prime shopping centres, strong asset-level performance, income security and active management are sustaining occupier demand and investor interest, with the best assets continuing to demonstrate operational resilience despite wider market volatility.

While volatility remains elevated, demand fundamentals suggest activity will be sustained, with improving supply – rather than pricing – likely to determine the pace of recovery.

Fuel for thought: Costs driving confidence

One of the defining features of the current macroeconomic environment is the extent to which fuel costs are again shaping household sentiment. Our analysis shows that the relationship between fuel prices and consumer confidence has strengthened materially during periods of geopolitical energy stress, and that diesel prices in particular now appear to have a more pronounced effect on confidence than petrol. This is significant because diesel is more closely linked to freight, haulage and distribution costs, meaning households interpret rising diesel prices not simply as a transport cost issue, but as a broader signal of inflationary pressure across the economy.

The historical pattern is instructive. During more stable periods, the relationship between fuel costs and confidence has tended to be present but moderate. By contrast, during major energy-related geopolitical shocks, it becomes markedly stronger. This was evident during the Ukraine conflict and has intensified again during the recent Iran-related disruption. In effect, fuel prices have become one of the most visible and immediate indicators through which global instability is transmitted into household finances and consumer psychology.

This dynamic has clear implications for both consumer behaviour and retail real estate. Heightened sensitivity to energy costs is contributing to more cautious and volatile spending patterns, with expenditure increasingly concentrated on value, convenience and essential categories, while discretionary and big-ticket purchases remain more exposed to swings in confidence.

In retail warehousing, this is reinforcing strong investor demand for prime, needs-based assets, where low vacancy, resilient occupier demand and income security continue to support stable pricing despite constrained stock availability.

In shopping centres, improving investor appetite and liquidity is evident, but activity is increasingly concentrated in larger, high-quality assets, where pricing is beginning to soften amid a more cautious underwriting environment, with execution risk also emerging as a key constraint as heightened geopolitical uncertainty compresses trading windows, leaving transaction volumes constrained more by reduced vendor willingness to sell than by underlying investor demand.

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