Research from Lambert Smith Hampton (LSH) suggests £11.1 bn (€13.2 bn) of UK property assets changed hands during Q2, up 11% on Q1 and the strongest quarter since Q3 of 2023, though still 8% down on the 5-year average.
While office volume ticked up by 19% quarter-on-quarter to £2.0 bn, 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.
Reflecting strong global demand for operational real estate, investment across the living sectors played a major role in driving volume yet again in Q2. Total living volume hit £5.0 bn in the quarter, the highest since Q2 2022 and 40% above trend, underpinned by a handful of substantial portfolio deals to overseas buyers.
Hotels posted another colossal quarter in Q2, with volume of £1.8 bn matching Q1’s level and standing at almost twice the trend level. This was dominated by two deals, Blackstone’s £850 mln acquisition of the Village Hotels Portfolio from KSL Capital Partners; and Ares Management’s £400 mln purchase of the Landsec/Ares Management Hotel Portfolio. Meanwhile, student accommodation volume soared to £1.4 bn in Q2 and included the quarter’s largest overall deal, Mapletree’s £964 mln purchase of 30 PBSA assets (UK deal component over 19 locations) from Cuscaden Peak Investments.
Retail bounce
Retail was the only core commercial sector to post above-trend volume in Q2, with volume of £1.9 bn standing 32% 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 £580 mln, over half of which comprised Norges Bank’s £360 mln purchase of an additional 50% stake in Meadowhall, Sheffield from British Land.
Central London offices endured another forgettable quarter, with volume of £1.0 bn down 54% on trend and including only one big ticket deal, LetterOne’s £100 mln purchase of 20 Grafton Street, Mayfair. In contrast, South East offices appeared to buck the trend, with volume of circa £570 mln double Q1’s level. However, approaching half of this involves plans to change use to residential, driven by the relaxation of Permitted Development rules.
Meanwhile, industrial volume of £1.7 bn in Q2 was fractionally above Q1’s level but 29% below the quarterly average.
On the domestic front, UK institutions were net sellers for a ninth consecutive quarter in Q2, with net disposals of £1.2 bn, while the REITs continued their concerted sell-off, with record net disposals of £2.1 bn. The REITS were behind three major disposals in Q2, the largest being Vistry Group's £580 mln sale of a single family housing portfolio to Blackstone and Regis.
Overseas inflows to UK property rebounded from a relatively subdued showing in Q1, with total purchasing of £5.8 bn 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 £3.4 bn in Q2, much of which was accounted for by major portfolio acquisitions in the living arena.
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 £590 mln in Q2, with total purchases amounting to £2.1 bn. They were notably active in the office market, accounting for circa 40% of total volume in the sector.
Ezra Nahome, CEO of Lambert Smith Hampton, said: 'While caution prevailed, Q2 brought tentative signs of improving sentiment, reflected by a pick-up in activity and greater confidence around pricing. Although 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.'
'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.'
'Though 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.'
