Investment activity in the Oxford-Cambridge Arc fell by 70% to £1bn in the first half of this year, according to the latest data from Bidwells.
The company blamed the slump on investors adopting a “wait and see” approach in response to interest rate rises.
Bidwells said prime offices and lab space in Oxford and Cambridge have proven to be relatively resilient over the last 18 months due to strong demand from tech and life science occupiers.
Office and lab space rents have risen and yields have also risen “relatively slowly” compared with the rest of the market by 0.75-1.0%, reflecting confidence among investors that rents will continue to increase. Prime yields for warehouse space have risen 1.25-1.50% over the last 18 months.
Mark Callender, research partner at Bidwells, said: “We expect a further limited increase in prime yields in the second half of 2023 and the Oxford-Cambridge Arc investment market to remain quiet. However, the first half of next year will probably see a recovery in investment transactions and stabilisation in prices, assuming interest rates stop rising.
“The Oxford-Cambridge Arc will out-perform the rest of the UK economy, thanks to its tech and life science clusters and strong occupier demand coupled with a slowdown in development following the sharp increase in construction costs will support prime rental growth.”
