To kick off the year JLL revealed that commercial real estate investment will hit between £43bn and £48bn in 2026, up by as much as 15% on 2025. Within this research, JLL predicted offices would return to being the most invested commercial real estate class – outperforming the living sector.
This is quite a turnaround for a market which appeared doomed following Covid and the introduction of hybrid working which saw employees spend more of their time working from home.
JLL now predicts around £15bn will be invested in UK offices over the next 12 months, with £10-12bn focused on London, and £3-5bn focused on the regions. The global brokerage said the return of investment into offices was being driven by the return of core capital and the improving debt position on the back of a lower base rate.
However, how does that answer the concerns around hybrid working and the fear that AI could reduce white-collar employment – do businesses still need large amounts of office space?
Hybrid working has certainly changed office attendance patterns, but workspace requirements are still determined by peak-day usage – meaning despite employees coming in for less days, most occupiers still require close to pre-Covid levels of space.
Meanwhile, the impact of AI has also been overstated as there is little evidence of widespread job destruction so far. In fact, it has pointed towards productivity gains and the importance of collaborative work, which helps to reinforce demand for offices.
The initial scientism around the office market is now helping to drive rents. Concerns around occupancy, alongside mounting construction costs saw development activity across the UK collapse.
Now many businesses who felt they could cut costs by reducing their office space are reevaluating their position as they understand the importance of collaboration and meeting space – see HSBC as a prime example.
It is not just in London where occupier demand is returning, Manchester and the Thames Valley have reported strong occupancy data over the past year. Former footballer turned property developer Gary Neville saw his 1 St Michael’s office scheme become fully let ahead of completion, whilst the flagship One Station Hill helped revive Reading’s office resurgence as it welcomed a host of international businesses.
With businesses increasingly seeking better workspace to help attract and retain the best talent, rents for prime, new build/recently refurbished offices are beginning to soar due to a lack of supply.
This lack of supply presents opportunities for investors, especially those willing to invest just below the top tier. In particular, well-located central business district offices which offer opportunities for enhancement.
These investors are set to benefit from a valuation disconnect and could achieve robust income growth in the long term.
This opportunity is why 2026 is certainly an exciting year for the office sector.
