Political instability and regulatory challenges have weakened investor confidence in UK commercial real estate, Investec’s latest Future Living survey found.
The report gathered views from 50 global institutional investors active in the UK Living sector, representing over £300bn of assets under management (AUM).
Three-quarters (76%) said political uncertainty had weakened the market, while six in 10 (60%) believed the UK risked falling behind other countries without quicker interest rate cuts.
Despite these challenges, the majority of investors (84%) said they expected to increase or maintain their allocation to the Living sector over the next five years.
The survey showed that regulation, especially the Building Safety Act, had a negative impact on strategy and operations.
46% pointed to regulatory uncertainty as a barrier to investing in non-owner-occupied residential real estate, up from 28% in the previous survey.
Out of those who said the Building Safety Act had an impact (92%), the main problems were higher compliance costs (68%), more administration (60%) and longer project timelines (54%).
Most investors (74%) have now changed their real estate strategy, with nearly half (46%) shifting away from new development towards refurbishing or repositioning existing assets.
On the positive side, almost nine in 10 (88%) did not see the Building Safety Act as a major obstacle to long-term growth in non-owner-occupied UK residential property.
The survey also found that the financing situation had improved, with only 22% seeing it as a barrier, down from 45% last year.
However, planning was seen as a bigger problem than last year (56%, up from 37%).
Construction cost inflation (74%) and higher interest rates (70%) remained top challenges, though concern about rates had fallen slightly since 2023.
50% of investors said the Renters’ Rights Act would lead them to focus more on the later living sector, while a similar number (46%) planned to cut investment in single-family rental.
Jonathan Long, head of corporate real estate lending at Investec, said: “This year’s Future Living report clearly identifies the challenging market backdrop and regulatory headaches currently facing investors in the UK Living sector.
“With pre-Budget uncertainty compounding the challenging fiscal backdrop and the lack of any real progress around proposed reforms to areas such as planning, it’s no surprise that investors are feeling more cautious.
“However, there are grounds for optimism. With several of the headwinds viewed as near-term only, and the fundamentals of the UK Living sector – compelling long-term demographic demand and a chronic shortage of high-quality, purpose-built homes – remaining strong, investors are continuing to look through the noise and are positioning themselves for a recovery in 2026.”
Long added: “This resilience has been a consistent theme across the previous editions of our three Future Living reports, which were published during some of the most turbulent market conditions in recent memory.
“Investec shares this cautiously optimistic outlook. While the operating environment continues to evolve, our proposition is unchanged.
“For c. 30 years, we’ve been deeply invested in providing tailored relationship-driven lending, combining speed, flexibility and structuring expertise with cross-bank solutions, giving clients in the mid-market the certainty and support they need to grow.”
He said: “As the sector navigates this period of transition, we remain committed to supporting our borrowers, helping them adapt to new regulatory requirements and continue delivering best-in-class real estate across the Living, office and logistics sectors.”
