Reed Smith: Real estate as a strategic lever

Amid higher-for-longer rates, tighter lender competition, variable occupational demand and hybrid work, UK corporates are treating real estate as a strategic lever rather than a fixed income stream.

Owners are re-evaluating holdings with a focus on operational resilience, pivoting from passive ownership to active, hands-on portfolio management. Property investors and corporates are actively managing portfolios to maximise value and efficiency.

Single-asset acquisitions

Multi-property portfolio deals fell to just over £750 million in 2025, down from £3.1 billion in 2024.1 Investors are instead targeting prime single assets, particularly hotels, which accounted for circa 85% of 2025 investment.2 Single-asset deals offer sharper pricing transparency, greater certainty and faster execution. They also give buyers tighter control over diligence, ESG and asset-management strategies for a specific property, rather than underwriting blended performance across diverse portfolios.

This trend prioritises quality over quantity, favouring best-in-class assets with resilient demand drivers, strong fundamentals and demonstrable operational upside. We expect this to persist until pricing stabilises and portfolio discounts narrow. In the meantime, sellers may achieve better outcomes through phased or asset-by-asset disposals, while buyers should be prepared to act quickly on scarce prime product.

Location and supply

Location continues to be a decisive factor in the Central London office market. Notwithstanding elevated interest rates and the ongoing prevalence of hybrid working arrangements, Central London has demonstrated notable resilience. This is underscored by the highest rent achieved for a Grade A prime building reaching £240 per square foot in the West End core, reflecting sustained demand for premium office space in key locations.3

CBRE forecasts prime City core rents could reach £93 psf by end-2026, with the West End core around £200 psf, driven by strong demand.4 Robust demand may prompt larger corporate occupiers to explore alternative sub-markets with slightly lower rents.5 Competition for space is unlikely to ease in 2026, with only circa 1.3 years of new supply under construction across the UK, underscoring a shortage of Grade A space. New delivery is likely to remain slow given planning constraints, elevated build costs and expensive development finance, supporting rising prime rents in core locations.6

Sale and leasebacks

Despite ongoing portfolio re-evaluation, the traditional sale-and-leaseback remains active. The model is simple: a business sells its property to an investor and immediately leases it back on a long-term lease, converting a fixed asset into capital and providing liquidity without diluting control. Operations continue with minimal disruption.

Sale-and-leaseback works best for fundamentally viable businesses, such as established retail locations, purpose-built facilities and operators with demonstrated stability (for example, holiday parks, supermarkets and hotel chains), as a proactive strategic tool rather than a last resort.7 A late-2025 deal underscores continued popularity into 2026. Lidl raised £180 million, with ICGRE acquiring newly developed Lidl stores on practical completion.8 The structure frees capital for Lidl while providing ICGRE with growing rental cashflows.

Rise of data centres

With the rapid rise of AI and cloud computing, data centres have become a high-conviction real-assets sub-sector, attracting substantial domestic and international investment. They underpin almost all economic activity and innovation, including the development of AI and other technology.9

The UK is the largest data centre market in Europe. 2026 is expected to be the second-highest year on record for new supply, driven largely by the rise of the neocloud.10 Elevated development is tempered by constraints around power availability, grid connection lead times and planning, all of which shape site selection and deal structuring. The UK Government is promoting large data centres via AI growth zones—including Culham (Oxfordshire), Teesside, Newcastle, and north and south Wales—to accelerate delivery and cluster compute-intensive industries.11

Repurposing assets

Corporates are re-positioning traditional shopping centres around enhanced experience—adding dining and leisure (for example, go-karting, bowling and other hybrid activities) and hosting events to build community and loyalty.12 This underlines the importance of dynamic portfolio management to enhance revenue. Investors have realised the need to broaden tenant mix beyond the traditional large retailers, to include varied food and beverage offerings, leisure zones as well as gym and wellness facilities.

Across sectors, occupiers are consolidating under-utilised space, prioritising high-performing, energy-efficient assets and repurposing under-used offices into mixed-use or co-working hubs. Overall, the UK property market is moving towards cautious optimism.

By Daniel Kyriakides, Partner, and Dashni Khimji, Associate, at Reed Smith

Source

[1] https://hotelsmag.com/news/uk-hotel-investment-2025/

[2] https://hotelsmag.com/news/uk-hotel-investment-2025/

[3] https://www.savills.co.uk/research_articles/229130/385149-0

[4] https://www.cbre.co.uk/insights/books/uk-real-estate-market-outlook-2026/economy

[5] https://www.cbre.co.uk/insights/books/uk-real-estate-market-outlook-2026/economy

[6] https://www.cbre.co.uk/insights/books/uk-real-estate-market-outlook-2026/economy

[7] https://www.propertyweek.com/insight/feedback/is-now-the-time-to-consider-sale-and-leaseback

[8] https://www.propertyweek.com/news/icgre-splashes-180m-on-lidle-portfolio-sale-and-leaseback-deal

[9] https://commonslibrary.parliament.uk/research-briefings/cbp-10315/

[10] https://www.cbre.co.uk/insights/books/uk-real-estate-market-outlook-2026/economy