Is 2026 the year property fights back?

By Juliet Schooling Latter on 28 January 2026 in Property

The troubles of 2022 will seem like a distant memory for most sectors, which have blown through their previous highs. For the property sector, however, the weakness has been more entrenched. It has been beset by changes to the office market, some slowing in e-commerce adoption and low appetite from investors. In some cases, property funds have yet to recover their pre-2022 levels, but that could change in 2026.

Why property has lagged the market

Investing in property should be straightforward. Investors receive inflation-adjusted rental income and some capital growth. However, it has been disrupted by structural changes, such as home-working and e-commerce. The sector is also rate sensitive and after interest rates rose sharply in 2022, investors have found little reason to reinvest. While certain types of property have remained in high demand, including care homes, social housing and student accommodation, overall performance has been tough. The MSCI World REITs index delivered a return of just 0.6% in 2025, compared to 19.5% for the MSCI World index*.

The forgotten part of the equity market

Yet 2026 may offer a reprieve on multiple fronts. A changing interest rate environment could provide a strong tailwind for the sector. Interest rates are likely to come down in the US and UK, and European real estate markets may not yet reflect European Central Bank cuts. Marcus Phayre-Mudge, manager at TR Property, says:

He says banks are increasingly competing to lend money. Rogier Quirijns, co-manager on the Cohen & Steers Global Real Estate Securities fund, agrees, saying that improving credit availability could be the swing factor: “After spending the last two years digesting the impact of the Fed hiking cycle on their loan books, banks have begun to re-enter the commercial real estate debt markets.”

He believes that private real estate bottomed in the third quarter of last year, and public markets need to catch up, adding, “given the combination of debt availability and idle capital that has been raised but not deployed, we expect 2026 transaction volumes to grow for the third consecutive year.”

Another advantage of property is that it looks cheap relative to asset values and it has a high yield. Investors may start to value a high yield and strong asset backing at a time when interest rates are lower, and valuations in some parts of the stock market are increasingly speculative. Marcus says:

“We’re in a forgotten part of the equity market. Everything has been about the Mag 7 or American exceptionalism. Here we have businesses that are well-run, strongly income producing, have good quality debt books, and good management teams.”

Where growth is emerging

Property is also tapped into some of the key themes that investors are finding so exciting. For example, AI cannot exist without data centres. Marcus says these assets are fast-becoming crucial infrastructure, drawing serious investment. The global data centre market reached $347.6 billion in 2024 and is projected to reach $652 billion by 2030**.

Even if it is not AI, property markets are tapping into shifting demographics through care homes, or shopping patterns through retail warehousing. While e-commerce is well-established in countries such as the UK and the US, it still has some way to go in Europe. International groups such as Amazon are far earlier in their adoption cycle.

Even the office sector is coming out from its malaise. Marcus says:

Its weakness may also be its strength. Marcus says that the property market malaise means there has been little new supply. It has been difficult to build anything. He adds: “Costs have exploded and there’s been little finance available for speculative construction.”

Many of the problems for commercial property have been resolved and the interest rate cycle is turning, yet investor appetite has not caught up. Generalist fund managers are starting to dip a toe back into the REIT market, spotting an opportunity there. Among investment trusts, discounts are high, which is helping fuel corporate activity, as trusts look to realise value. Property is cheap and unloved and may be due for a reappraisal in the year ahead.

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*Source: index factsheet, 31 December 2025

**Source: Nasdaq, 16 July 2025