As we moved through Q1 2026, a backdrop of global economic and geopolitical uncertainty continued to shape sentiment, yet the cautious optimism that began to re-emerge in late 2025 has started to translate into action.
Challenges around viability, cost and political uncertainty remain – with forthcoming local elections adding another variable – but the shift is clear: from observation to engagement across planning, development, investment and occupier markets.
This isn’t uniform recovery, and it isn’t being driven by one catalyst. It’s a steadier shift: clearer assumptions, better data, and more decisions being taken where risk is measurable.
Planning activity strengthened through Q1, particularly across the living sector. Instructions – both speculative and funded – have increased, with brownfield and emerging grey-belt sites continuing to dominate, often supported by early promotion and feasibility work.
Policy is no longer the primary constraint. National and London-wide frameworks have shifted materially, creating a more supportive baseline for housing delivery. The friction now sits in interpretation, political risk and resourcing, with local decision-making continuing to introduce delay despite acute housing need.
In London, sentiment has lifted meaningfully. The first strategic Green Belt review, alongside early signals around the next London Plan, is encouraging a more ambitious debate around height, density and alternative living products. Co-living remains the most active part of the pipeline, although lender caution around exit strategies continues to shape delivery models.
The result is a more active but more forensic market. Due diligence is happening earlier, risk is being priced in sooner, and planning is increasingly central to unlocking value rather than simply securing consent.
Development sentiment has edged forward, supported by improving funding certainty and greater public sector engagement. Large-scale regeneration and public-led schemes are gaining traction, while stalled or partially completed sites are returning for viability review as confidence improves.
Viability, however, remains the defining constraint. London residential sales rates continue to move slowly, typically at c.1-2 private sales per month, often supported by discounting. Combined with cost uncertainty and wider geopolitical pressures, this is reinforcing a more pragmatic approach.
Developers are increasingly favouring:
- Phasing over scale
- Flexible tenure mixes over fixed models
- Bulk sale, RP and investment-led structures
Registered Providers are becoming more active as grant certainty improves through the AHP 2026-36 programme, while local authorities are stepping in more frequently to acquire stalled stock and accelerate delivery. At the same time, decisions around the Building Safety Levy and the balance between quality and deliverability will remain critical through the year.
Read our Q1 London Residential Development update here
The investment market entered 2026 with improving sentiment, although geopolitical tensions have reintroduced caution – particularly around inflation and pricing.
Performance remains positive but increasingly income-led. Retail and industrial continue to outperform, while offices lag, albeit with gradual improvement as capital values stabilise.
This divergence is shaping behaviour. Capital is concentrating on stronger sectors such as retail warehouses and foodstores, where resilient demand and low vacancy are driving some yield compression. Across the market, investors are targeting prime, well-located and energy-efficient assets, reinforcing the shift towards quality and durable income.
Office investment remains selective but is strengthening for best-in-class space, particularly in Central London where rental growth is strongest.
Looking ahead, activity is expected to remain measured, but improving pricing and income visibility should support selective deployment through Q2.
The foodstore sector has continued to demonstrate resilience, reinforcing its position as one of the market’s most defensive asset classes. In an uncertain environment, the combination of nondiscretionary spend and secure, long-term income remains highly attractive.
Demand is strongest at the prime end, where yield compression has been most evident. Core and core-plus assets continue to attract significant interest, supported by inflation-linked or index-reviewed leases and strong income profiles. The investor base remains broad, helping to sustain pricing despite wider market caution.
Operationally, the sector remains robust but under pressure. Operators are managing cost inflation and intense competition. Despite this, strong trading performance and the essential nature of the offer continue to underpin investor confidence.
Foodstores are expected to remain one of the more active segments through Q2, supported by portfolio activity and continued demand for secure income.
Occupier confidence has continued to translate into action. Office utilisation has remained resilient, reaching a post-Covid high of 45.5% in mid-March before stabilising, with midweek attendance now at around 75% of pre-pandemic levels.
Rather than withdrawing, occupiers are becoming more selective. The flight to quality remains pronounced, with demand focused on well-located, high-performing buildings that support collaboration, wellbeing and ESG objectives. Secondary stock continues to come under pressure, reinforcing market polarisation.
Portfolio optimisation is the dominant theme – consolidation into fewer locations, clearer “stay vs go” strategies and earlier engagement around lease events. Flex and managed workspace has matured into a core strategic tool, helping occupiers manage uncertainty while improving quality.
Crucially, conversations have moved beyond headline rent. Total occupancy cost – including incentives, service charge, business rates and ESG compliance – is now a board-level issue, creating opportunities for those taking a more forensic view of portfolio value.
Where momentum is building
Across disciplines, Q1 reinforces several shared signals:
- Early-stage engagement and instruction levels are rising
- Risk is being addressed earlier through structure, phasing and flexibility
- Public sector participation is increasing as funding certainty improves
- Capital and occupiers continue to gravitate towards quality and clarity
Regional city markets continue to perform strongly, often offering a more compelling total value proposition than London. In the capital, increasing policy pragmatism and transparency are beginning to restore confidence in delivery.
What to watch next
The coming quarters will be shaped by execution. Local elections, national policy implementation and the emerging London Plan consultation will all influence pace and confidence.
Office utilisation trends will continue to shape occupier strategies, while lending appetite and demand stimulus will determine how quickly development sentiment translates into starts on site. For housing delivery, the balance between ambition and viability remains critical.
Looking ahead
Q1 has not removed the structural challenges facing the market, but it has confirmed that conditions are less constrained than in recent years. Confidence is becoming practical. Enquiries are turning into instructions, and policy ambition is increasingly being tested against delivery reality.
The market is edging forward – and doing so with greater intent.
Newsteer’s #OurSteer 2026 authors:
Alastair Crowdy, Managing Director
David Conboy, Director, Development Consultancy
Jessica Wilson, Director, Planning