Q1 2026 | January – March 2026
Prepared by RES Property Surveyors Limited | Commercial Property Valuation London & Nationwide
Executive Summary
The UK commercial property market entered Q1 2026 in a state of cautious resilience. Against a backdrop of geopolitical uncertainty — including elevated energy prices following the closure of the Strait of Hormuz in late February 2026 — the market nonetheless delivered positive total returns across all major sectors, underpinned by stable income streams and continued, if modest, rental growth.
All-property capital values were broadly stable over the quarter, with total returns reaching approximately 1.4%, driven primarily by income returns rather than capital growth. Demand from domestic institutional investors and cross-border capital continued to improve, and transaction volumes are expected to accelerate through the remainder of 2026. For those requiring commercial property valuation in London or across UK regional markets, the prevailing picture is one of income-led stability with selective opportunities for capital growth in prime, well-located stock.
Macroeconomic Context
The UK economy entered 2026 with modest growth expectations, with GDP forecasts marginally softer than 2025 but positive. Inflation continued its gradual decline in line with expectations, and the Bank of England delivered further interest rate reductions — base rate having already been cut by 150 basis points from its recent peak. Gilt yields fluctuated between approximately 4.5% and 4.7% during Q1, reflecting ongoing market sensitivity to geopolitical events and shifting monetary policy expectations.
The spread between all-property equivalent yields and 10-year gilts narrowed to approximately 240 basis points by early 2026, down from a recent peak of around 350 basis points at the start of 2024. While this compression limits the scope for near-term yield hardening, it reflects genuine re-pricing of the asset class following the rate cycle. For commercial property valuation surveyors advising clients on acquisition or disposal strategies, the message is that the cost of capital is easing but yields — particularly outside London — remain elevated relative to long-run averages, presenting a potential entry opportunity.
Q1 2026: Prime Yields & Rents at a Glance
The table below summarises prime and indicative secondary yields, prime rental levels, and directional trends across the main UK commercial property sectors as at Q1 2026. London valuation metrics are highlighted separately within each sector narrative below.
| Sector / Location | Prime Yield | Secondary Yield | Prime Rent | Trend |
| City of London Office | 5.50% | 7.50–8.50% | £85–£95 psf | Stable |
| West End Office | 4.00% | 6.00–7.00% | £120–£155 psf | Rising |
| Regional Office (prime) | 6.75% | 8.00–9.50% | £35–£45 psf | Stable/Rising |
| Prime High Street Retail | 5.50–6.00% | 8.00–10.00% | Variable | Softening |
| Retail Warehouse / Park | 5.75–6.25% | 7.50–9.00% | +2.9% pa | Rising |
| Shopping Centre (prime) | 7.00–8.00% | 10.00%+ | Variable | Stable |
| Industrial / Logistics (SE) | 4.50–5.00% | 6.50–7.50% | £25–£35 psf | Rising |
| Industrial / Distribution (nat.) | 5.25% | 6.50–7.50% | +3.3% pa | Rising |
| All-Property Average | ~5.91% | — | +3.3% pa | Stable |
Sources: CBRE, Cushman & Wakefield, Savills, Carter Jonas, JLL (Q1 2026). psf = per sq ft per annum. Yields are net initial yields on prime stock. Secondary yields are indicative ranges.
Office Sector
National Picture
The UK office market continued its two-speed trajectory in Q1 2026. Annual office capital values remained in modest negative territory at approximately -2.5% on a 12-month basis, though quarter-on-quarter performance continued to improve. The polarisation between prime, Grade A space and secondary stock intensified, with occupiers demonstrably prioritising quality of environment, ESG credentials, and locational convenience over raw cost. Office total returns for Q1 were approximately 0.9%, the weakest of the main sectors.
On the supply side, chronic under-supply of Grade A space across UK regional cities is expected to persist and potentially worsen through 2026. Development viability remains challenged by elevated construction costs and borrowing costs, and whilst planning reforms have been announced, meaningful new supply is unlikely to arrive within the year. Prime regional office yields are broadly stable at around 6.75%, with forecasts suggesting potential compression of at least 75 basis points over the next five years as confidence improves.
London Office Market — London Valuation Perspective
Central London offices remained the most actively traded commercial property sub-sector nationally during Q1 2026. In Q4 2025, central London office take-up totalled 2.88 million sq ft — 17% above the 10-year average — setting a positive tone for the current year. Core prime City of London office yields were held at 5.50%, while West End yields firmed at approximately 4.00%, reflecting continued strong demand for best-in-class space from financial, professional services, and technology occupiers.
Prime West End rents exceeded £150 per sq ft in the most sought-after locations, while City rents ranged from approximately £85 to £95 per sq ft per annum. The vacancy rate across central London stood at close to 10% on an overall basis — the highest in two decades — yet this masks the acute scarcity of available, truly prime, energy-efficient space. Landlords of secondary stock continued to offer material rent-free incentives, further accentuating the bifurcation in pricing. For property valuation London assignments, practitioners must therefore distinguish rigorously between Grade A and secondary accommodation when appraising evidence and adjusting comparable transactions.
Investment into central London offices reached £9.76 billion in the full year 2025, a 61% increase on 2024, with the momentum expected to carry into 2026. The spread between City and West End prime yields stands at approximately 150 basis points — well above the long-run average of 90 basis points — suggesting potential for yield hardening in City assets as investor confidence consolidates.
Retail Sector
National Picture
The retail property market continued to demonstrate a clear division between prime and secondary assets in Q1 2026. Retail total returns for the quarter reached 1.7% — the highest of all sectors — driven by yield stability and positive income returns. However, the headline figures require careful disaggregation by sub-sector, as performance varied materially across the retail landscape.
Retail warehouse and out-of-town retail parks emerged as the strongest sub-sector, with rental value growth of 2.9% in the year to February 2026. Vacancy rates at dominant retail destinations fell to cyclical lows, underpinned by the recalibration of omnichannel retail strategies and the emergence of new occupier types — including food and beverage, leisure, and health and wellbeing concepts — broadening demand beyond traditional fashion and goods retailers.
Standard high street retail presented a more nuanced picture. After peaking at annual rental growth of 3.4% in October 2025, growth had turned modestly negative by February 2026 at -3.3%, reflecting the impact of higher employer National Insurance contributions and elevated operating costs on retailer margins. Prime shopping centres are the only sub-sector where prime yields remain above their levels seen during the Global Financial Crisis, at 7.00–8.00%, indicating continued investor caution toward discretionary retail destinations.
For commercial property valuation and surveyors advising on retail assets, the distinction between prime and secondary locations has never been more consequential. Secondary high street units in non-dominant centres face structural headwinds from vacancy, occupational weakness, and ongoing yield softening. Conversely, prime retail parks and food-anchored schemes continue to attract institutional capital, and prime yields in this segment are in the range of 5.75–6.25%.
London Retail
Central London’s prime retail streets — including Bond Street, Oxford Street, and Covent Garden — remained strongly sought after by international and luxury brands, with super-prime high street transactions continuing to attract cross-border capital. London valuation evidence for prime retail assets in these locations reflects the ongoing flight-to-quality, with rents and capital values broadly maintained. Vacancy on prime pitches remained low, though wider central London retail was not immune to the general softening in high street occupier demand.
Industrial & Logistics Sector
National Picture
Industrial and logistics remained the most consistently performing sector of the UK commercial property market in Q1 2026. The sector posted the highest month-on-month total return of all sectors in March 2026 at 0.6%, with quarterly total returns reaching 1.6%. Annual industrial capital value growth stood at 2.7% in the year to February 2026 — comfortably outperforming the all-property average.
Rental value growth continued at a national level, with annual growth of approximately 3.3% per annum for distribution warehouses. Both South East and Rest of UK industrial assets recorded rental value increases of 0.3% in March alone, reflecting the continued strength of underlying occupational demand. Prime national distribution warehouse yields stood at approximately 5.25%, with multi-let industrial in the South East commanding yields closer to 4.50–5.00%.
Demand softened modestly in the second half of 2025 in response to tariff uncertainty and broader global economic headwinds, but a more positive economic outlook and expanding defence sector activity are expected to reinvigorate occupier demand through 2026. The investment market has been increasingly driven by large portfolio and platform transactions, including Blackstone’s acquisitions of Warehouse REIT and its strategic deal with Tritax Big Box REIT, demonstrating the depth of institutional appetite for scale.
London & South East Industrial
Within the M25 and Greater London industrial market, demand for urban warehousing and last-mile logistics hubs continued to outstrip available supply in Q1 2026. Prime logistics rents inside the M25 reached £25–£35 per sq ft per annum, with vacancy rates below 4% in the most sought-after locations. Key clusters including Park Royal, Enfield, Croydon, and Dagenham continued to attract strong occupier demand from e-commerce and quick-commerce operators. Commercial property valuation in London for industrial assets must take careful account of location-specific supply constraints and the premium now attached to proximity to transport infrastructure and dense urban populations.
Investment Market Overview
UK commercial property investment volumes are expected to show a gradual improvement through 2026, underpinned by stabilising yields, falling debt costs, and improving investor confidence. Savills projects transaction volumes to be approximately 10% higher in 2026 than 2025, whilst CBRE anticipates that increased competition between lenders and a continued reduction in the cost of debt will support deployment of capital across all sectors.
The average all-sector prime yield stood at approximately 5.91% at the start of 2026, little changed from the prior year. With most retail and office prime yields still sitting more than 100 basis points above their long-run averages, there is genuine scope for yield compression as macro conditions normalise. Commercial property valuation surveyors will note that the current pricing environment rewards well-let, prime assets with strong ESG credentials, whilst secondary stock continues to reprice in the absence of liquidity.
For domestic institutional investors, defined contribution pension funds, and cross-border capital alike, the UK remains an attractive destination: rents are growing above average, income returns are healthy, and valuations — relative to replacement cost and long-run averages — remain attractive across several sub-sectors and regions.
Outlook for Q2 2026 and Beyond
- All-property total returns are expected to remain positive but income-led, with broad-based capital value recovery unlikely until yields compress further.
- Office — Prime central London and best-in-class regional offices are the preferred sector for investors in 2026. Rental growth of 3–5% per annum is anticipated through 2027 for prime space. London valuation evidence will continue to be driven by Grade A leasing activity.
- Retail — Prime retail parks and food-anchored assets will continue to attract capital. High street performance will remain bifurcated. Retailers face ongoing cost pressures from National Insurance changes, potentially softening rental growth further in secondary locations.
- Industrial & Logistics — The sector remains structurally supported by e-commerce and supply chain modernisation. Rental growth is expected to remain above average in the regions; London and South East logistics will continue to command a significant rent premium.
- Geopolitical risk — The closure of the Strait of Hormuz and elevated energy prices introduce upside risk to inflation, which could delay further Bank of England rate cuts and limit the pace of yield compression.
- MEES & ESG — The government’s tightening Minimum Energy Efficiency Standards continue to drive occupier and investor decision-making, underpinning demand for green, certified buildings and accelerating the obsolescence of non-compliant secondary stock.
About RES Property Surveyors Limited
RES Property Surveyors Limited provides independent commercial property valuation, surveying, and expert witness services across London and the wider United Kingdom. Our experienced team of RICS-qualified surveyors offers specialist advice on commercial property valuation London and nationally, covering office, retail, industrial, and mixed-use assets.
Our services include Red Book valuations for secured lending, acquisition, and disposal; expert witness reports for professional negligence and property dispute matters; commercial property valuation for taxation, accounts, and planning purposes; and occupier and landlord advisory work across all property types.
Whether you require property valuation London for a City office, a retail park in the regions, or an industrial estate in the South East, RES Property Surveyors Limited combines technical expertise with a thorough understanding of current market conditions to deliver reliable, well-reasoned valuation advice.
Contact: www.res-prop.com | Commercial Property Valuation & Advisory | RICS Regulated Firm
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