Active Capital: Halftime notes through a UK lens

In the January survey results launch, we had already anticipated a more backloaded year for deployment, following patterns of the last few years. Following the geopolitical shock around the Strait of Hormuz and the resulting volatility in rates, this dynamic is now likely to be reinforced.

Investors less sensitive to interest rates and less reliant on debt, particularly those targeting offices and retail, are likely to continue to transact according to the survey results. However, for the broader market, activity is likely to concentrate more heavily into Q4 once there is greater policy clarity and potentially, further stabilisation in swap rates.

Provisional Q2 volumes for the UK, including contract and pending deals, are already just ahead of Q1, according to RCA. With around half of Q2 activity yet to be confirmed by RCA, it remains unclear whether the quarter will outperform or fall short of Q1. However, even if some deals slip beyond quarter end, they are likely to carry through and provide momentum into Q3.

The survey identified stabilising rates and improving visibility as key to unlocking transactions. While UK pricing has been driven more by global than domestic factors, this remains fragile following a period of volatility in interest rates and swaps.

The underlying supply–demand imbalance, particularly for prime assets, continues to support activity. However, the sensitivity is more likely to emerge in secondary and tertiary markets, where execution risk is higher. The diversified lending environment in the UK remains a tailwind, with margins remaining competitive.

The UK’s position is underpinned by depth, transparency, early-cycle repricing – and demographics. This does not change, at least immediately. However, the resignation introduces a degree of short-term repositioning at the margin.

Capital in this cycle is highly selective, and even modest increases in perceived execution risk can slow inflows temporarily. That said, the UK has navigated multiple leadership changes in recent years while remaining a leading destination for global capital, so this is not new. In the context of the global geopolitical stage, markets have been relatively sanguine about the change in PM.

The imbalance between capital seeking deployment and available stock remains a defining feature of the market. If deployment pauses, that imbalance does not dissipate, it is deferred. The implication is that competitive tension may re-emerge more abruptly once clarity returns, rather than building gradually through the year. The potential for a more pronounced Q4 concentration of activity is therefore increasing.

Core and core-plus strategies are likely to take a more prominent role. In periods of uncertainty, investors tend to prioritise income resilience and lower execution risk, with higher-return strategies more likely to be deferred until visibility improves.

Set against this, the traditional core investors, institutional capital, may delay planned activity as this is a type of capital typically needs to see evidence, not anticipation of a recovery. We are likely to see other investor types, including private equity stepping into this space where competition is thinner than expected.

The move towards selective deployment into liquid, transparent markets remains central. If anything, this dynamic is likely to intensify, with investors focusing on assets and sectors where execution risk is lowest and pricing is clearest.

The resignation does not directly change return requirements, but it could increase perceived execution risk for some investors pending policy announcements and the autumn budget. However, our survey found that only 5% of investors saw regulation & tax a top three influence on real estate investment, with rates and occupier demand being more important drivers of capital activity.

Joint ventures and partnerships are likely to play a greater role as investors look to manage risk and access local expertise. In a more uncertain environment, these structures become a practical way to continue deploying capital, particularly where sectors or assets are more complex.

At the time of writing, Q2 UK JV investment has seen a significant bump in activity, particularly in the residential and office sectors, reflecting this.

Competition between bank and non-bank lenders in the UK continues to support relatively stable margins, but the swap component volatile and relatively elevated. This has already contributed to a degree of caution among debt-reliant investors.

The resignation itself has not materially shifted rates at the time of writing. If anything, positive news on the Strait of Hormuz has led to a drifting down in swap rates. However, it is unlikely that the swap rate path will be smooth from here as global geopolitics, imported inflation and international monetary policy all influence and all remain somewhat unknown.

The recovery was never expected to be linear. What changes is the timing. The usual summer holiday lull (even if not to the usual degree), combined with earlier global volatility, increases the likelihood of a more backloaded recovery. Any rebound later in the year may overstate underlying momentum if it reflects delayed rather than new capital deployment.