Investment volume climbed to its highest level in nearly two years in Q2, according to LSH’s latest UK Investment Transactions (UKIT) Report.

Download the latest UKIT Q2 2024 report here in full →

£11.1bn of UK property assets changed hands during Q2, up 12% on Q1’s total and the strongest outturn since Q3 2022. Investment across the living sectors played a major role in driving overall volume yet again in Q2. Total living volume hit £5.0bn in the quarter, the highest since Q2 2022 and 40% above trend, underpinned by a handful of substantial portfolio deals to overseas buyers.

Within living, student accommodation volume soared to £1.4bn in Q2 and included the quarter’s largest overall deal, Mapletree’s £964m purchase of 30 PBSA assets (UK deal component over 19 locations) from Cuscaden Peak Investments. Hotels posted another colossal quarter in Q2, with volume of £1.8bn matching Q1’s level and standing at almost twice the trend level.

Echoing Q1’s pattern, retail was the only core commercial sector to post above-trend volume in Q2, with volume of £1.7bn standing 21% above average. While retail warehousing has been central to retail’s revival in recent times, a standout quarter for shopping centres was key in Q2. Volume in the sub-sector surged to a seven-year high of £600m, over half of which comprised Norges Bank’s £360m purchase of an additional 50% stake in Meadowhall, Sheffield from British Land.

While office volume ticked up by 28% q-on-q to £2.0bn, it was still only around half its trend level, with investor caution and softer prices in the sector continuing to act as a key drag on overall volume. Central London offices endured another forgettable quarter, with volume of £1.1bn down 54% on trend and including only one big ticket deal, LetterOne’s £100m purchase of 20 Grafton Street, Mayfair.

Overseas inflows to UK property rebounded from a relatively subdued showing in Q1, with total purchasing of £6.0bn the strongest since Q3 2022 and closely in line with the five-year trend level. Inflows from North America proved key once again, amounting to £3.4bn in Q2, much of which was accounted for by major portfolio acquisitions in the living arena.

On the domestic front, UK institutions were net sellers for a ninth consecutive quarter in Q2, with net disposals of £1.1bn, while the quoted propcos continued their concerted sell-off, with record net disposals of £2.3bn.

Meanwhile, reflecting a growing sense of opportunity in the market, private propcos were notably acquisitive in Q2. Following ten consecutive quarters of net selling, private propco were net buyers to the tune of £650m in Q2, with total purchases amounting to £2.1bn. They were notably active in the office market, accounting for circa 40% of total volume in the sector.

On the pricing front, the All Property average transactional yield moved out by a relatively modest 6bps during Q2 to stand at 6.28%. This marks a fifth successive softening in the average yield, which now stands at its highest level in over a decade. Reflecting ongoing price discovery, the average office transaction yield moved out by a further 30bps in Q2 to stand at a 15-year high of 7.60%.

Ezra Nahome, CEO of Lambert Smith Hampton, commented:

“Q2 brought tentative signs of improving sentiment, reflected by a pick-up in activity and greater confidence around pricing. While the living sectors continue to prop up volumes, it’s encouraging to see investors coming back into retail, a sure sign that the sector is starting to find its feet after a long period of trauma and transition.

“Putting England’s Euros heartbreak to one side, there is a real feeling that conditions will improve from here onwards. Labour’s resounding victory, while largely expected, has coincided with a marked improvement across a range of economic indicators, and this should pave the way for a stronger, more confident backdrop to investor decision-making in the second half of the year.

”Whilst a lot of attention appears focused on when the first interest rate cut will take place, more crucial is quite where interest rates will be in 12 to 18 months’ time. That remains the glaring uncertainty for investors, and hopefully conditions will be conducive for a sequence of cuts as the new government settles into power”.

Download the latest UKIT Q2 2024 report here in full →