The limited supply of prime product and a widening gap between Central London and the rest of the country contributed to a big decline in direct commercial real estate investment in the UK in the second quarter of 2011, according to new figures from Jones Lang LaSalle.

Direct investment in the period from April to end-June 2011 totalled £6.6 bn (EUR 7.5 bn), a 24% decline on the first three months of the year and a 11% decrease on levels achieved in Q2 2010.

The year started on a cautiously optimistic note with £8.7 bn of UK real estate transacted in the first quarter, though JLL notes that the figure was inflated by the £1.6 bn sale of the Trafford Centre in Manchester.

Since then the UK real estate market has reflected the further polarisation between the London and regional markets. Robert Stassen, head of EMEA Capital Markets Research, commented: 'The dynamics of the Central London investment market remain unique compared to the rest of the UK. Investor activity in the capital in Q2 2011 amounted to almost 58% of the UK's total volumes and is heavily skewed towards the office market; almost 69% of all transactions in this sector in Q2 were in Central London.'

Jones Lang LaSalle highlights that the continuing popularity of prime London assets with investors, particularly those from outside of the UK, has led to a shortage of suitable product. Whilst the City and West End office markets have experienced good momentum this year, both have been characterised by an extremely tight supply of prime assets and this is expected to continue through to year-end.

The UK remained the most liquid real estate investment market in the EMEA region, yet its market share has eroded marginally over the past six months, falling to 30% in Q2 2011 from 37 percent in Q2 2010 (35% for H1 2011). The evident recovery in other markets, notably Germany, Nordics and Russia, has pushed down the UK’s overall market share as its activity slowed into 2011.