UK investment volumes for Q3 signal ‘paradigm shift’ in market

New research published on Thursday revealing a sharp fall in Q3 investment volumes in the UK adds to the growing unease about the outlook for the market.

The latest UK investment transactions report from property consultancy Lambert Smith Hampton (LSH) reveals that £10.6 bn (€12 bn) of property assets changed hands during Q3 2022, down 36% on Q2 and the weakest quarterly result since Q3 2020.

The number of deals recorded in September hit the lowest monthly total since the height of the pandemic in May 2020.

While weakening sentiment and pricing uncertainty were reflected across the board, their impact on volumes was notable at the larger end of the market. The third quarter saw only 24 deals in excess of £100 mln, down from 38 in Q2 and far removed from the recent high of 50 seen Q4 2021, LSH noted.

The biggest and only transaction over £500 mln in Q3 was Australian investor TCorp’s £809m (4.60% NIY) purchase of 21 Moorfields, EC2 from Land Securities. The deal offset an otherwise subdued quarter for Central London offices, where volume of £2.5 bn was only 17% below trend.

Office investment around the rest of the UK slumped from Q2’s strong result. Meanwhile, ongoing global appetite for life sciences continued to prop up the South-East offices market, with Q3’s headline deal being Railpen Investment’s £180 mln purchase of the Botanic Place development in Cambridge.

Despite a sharp softening of yields during Q3, industrial and logistics clearly bucked the trend with investment volumes of £3.3 bn, 34% above trend and accounting for a record 31% share of the UK’s total for the quarter.

At £819 mln, UK retail volumes for Q3 were 42% below average and marked the first sub-£1 bn quarter since Q2 2020. Supermarket Income REIT played a key role on the buy side in Q3, as it scooped four of the five biggest retail deals, the largest being its £85 mln (5.60% NIY) acquisition of the Willow Brook Centre in Bristol.

Ezra Nahome, CEO of LSH, commented: ‘The long era of ultra-low interest rates and cheap finance has come to an end, ushering in a paradigm shift in the market. Yields have already moved out across the board, with some sectors being hit harder than others.

‘While a correction is underway, uncertainty over its duration and severity is giving rise to indecision and delay. This is likely to be reflected in another subdued quarter in Q4, after which greater clarity around the economy and interest rates should hopefully emerge in 2023, providing much-needed stability and a return to transactional activity.’

See also: Goldman Sachs warns of price crash for UK commercial property


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