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THE FOG OF WAR
Ten days into Operation Epic Fury, with Brent crude well past $100 a barrel and a new supreme leader in Tehran, the nascent recovery in UK real estate investment faces an intensifying stress test. The market entered 2026 with genuine momentum. Q4 2025 volumes of £17.5 billion were the strongest since mid2022, and the MSCI UK Quarterly Index delivered 6% total returns for the year, and core institutional capital was visibly reengaging. That trajectory is now up for questioning.
Ten year gilts have surged to 4.74% (up over 40 basis points), before easing back; two yields jumped 32 basis points on 9 March alone; and futures markets now seem to rule out Bank of England rate cuts entirely for 2026. The investment recovery was predicated on a rate trajectory: falling borrowing costs, improving debt service coverage, and gradual yield compression. Higher gilts and wider risk premia would drive capital values down. Higher financing costs and economic uncertainty are likely to slow investment decision-making in the near term. Deal timelines may extend, and some transactions could be paused.
Energy intensive sectors including manufacturing, logistics and data face the most direct cost impact. The UK already has the highest industrial energy prices in the developed world; a further spike could lead to occupier retrenchment. Higher energy bills and fuel costs will also impact consumer-facing industries. However, there is nuance over and above a risk The FTSE 100 is down from prewar highs, but real estate equities have thus far outperformed the broader index suggesting defensive rotation toward real assets rather than outright flight. There is an argument to be made that with bonds, equities losing value, then secure index income gives inflationary protection.
In turn, for core assets with secure income, real estate’s relative stability may attract defensive capital, particularly from investors rotating out of volatile equity markets (although there is a wider story at play here for another time). Additionally, there is an argument that the UK’s safe haven credentials of deep liquidity, transparent legal frameworks, and relative political stability are being reinforced.
