UK real estate investment volumes fell by 11% in Q2 2025, compared with the same period last year.  For the first half of the year, there was a 7% decline year-on-year.

The statistics, from data and research house MSCI’s Europe Capital Trends report, make sobering reading. If it’s any consolation, the UK was still Europe’s most active real estate market, accounting for more than twice the investment volumes recorded in second placed Germany.

Both macro and micro economic events have created a climate of uncertainty and caution among real estate vendors and investors. Tariff concerns, persistently high gilt yields, a stuttering UK economy and the decision to delay the Budget until November have all unsettled the market.

While movements in the equity markets were volatile in the wake of shocks such as Trump’s tariffs, real estate’s relative illiquidity meant a drop in deal volumes was an inevitable response.

Encouragingly, although the figures for Q3 are not yet out, MSCI reports that the pipeline of deals pending completion at the start of July was the strongest for three years. CoStar also reports that a number of large investment and leasing transactions in September means the market will have a stronger end to the year.

This is a sign of a growing acceptance that conditions have changed and volatility may be the new norm. Various sentiment surveys report renewed optimism – albeit cautious – providing hope for a rebound.

The gap between what buyers will pay and what vendors will accept has also started to narrow. A generational shift in wealth is helping with this trend. Baby boomers who have built real estate portfolios are beginning to pass them on. However, their lucky heirs don’t always have the same emotional ties to bricks and mortar, nor are they minded to become landlords. In their desire to cash in, they are less concerned about legacy pricing and more likely to accept sensible valuations.

A drill down into the H1 figures show that lot sizes of £10m – £50m accounted for the largest share of transactions, some 30% of the total. It’s no coincidence that this is the sweet spot for many private portfolios.

In previous downturns, distressed sales were a prominent feature of the market. These transactions resulted in price corrections and reset expectations. In the current market, landlords are generally less leveraged than previously, so sales are less likely to be forced.

While the fundamentals driving a valuation haven’t changed – location, lease length, occupier covenant, development opportunity and income – a little more realism from vendors will be the touchpaper that starts an upturn in the UK real estate investment market.