A Year in Review and Expectations for 2026

Knight Frank describes 2025 as the toughest year in recent memory for residential development, with high borrowing costs, regulatory hurdles and weak buyer confidence, but sees a cautiously optimistic outlook for 2026.

Across the UK, major housebuilders dominated land buying but were highly selective. Well-located consented sites drew strong competition, yet Knight Frank’s Development Land Index shows greenfield and urban brownfield values down 5% in the year to Q3 2025. Sales rates improved but remain below long-term norms. For 2026, the firm expects strategic land, and particularly grey belt sites near conurbations with good transport links, to attract more interest. Further base rate cuts and NPPF reforms should support activity, while bulk sales and forward funding will remain important. Institutions spent over £1 billion on single-family rental housing in the first three quarters of 2025.

In London, slower sales, rising build costs and Gateway 2 delays weighed on the market. Molior recorded just 3,248 private housing starts in the first nine months, a historic low. Knight Frank sees opportunity for developers taking a longer view, expects more sites to come to market in the first half of 2026, and suggests demand-side stimulus could lift activity and values.

London new homes sales totalled only 5,933 between January and September. The firm expects a two-speed market in 2026, with firm demand for completed homes in good locations but continued pressure on off-plan sales, especially in prime central London. Markets expect 64 basis points of rate cuts by the end of 2026, which should help the spring selling season, though buyers will stay price sensitive with around 3,400 completed unsold units in the capital.

Unsold homes under construction in London have fallen from over 30,000 in 2018 to just over 20,000, but slow sales mean this still equals about 38 months of supply.

Source: Knight Frank Newcastle, original article (12 December 2025)