UK property investment activity fell below £7.5bn in Q2 2023, marking the first time in more than a decade that the market has experienced a third successive quarter of sub-£10bn, according to the latest data from Lambert Smith Hampton (LSH).
LSH’s UK Investment Transactions (UKIT) report said Q2 activity was down 10% on Q1’s “subdued activity” and 41% below the five-year quarterly average.
Offices bore the brunt of investor caution with volumes slumping to £1.9bn – down 26% on Q1 and 53% below average. Following a mini-revival over the last couple of years, retail investment activity slumped to £778m – down 42% on Q1 and the weakest level of activity since the height of the pandemic in Q2 2020. Retail warehousing was the best traded sub-sector relative to trend in Q2, with volume of £528m only 3% below average.
Industrial and logistics saw the strongest volume relative to trend of the core sectors in Q2, following a substantial price correction at the end of 2022. Total volume hit £1.9bn in the quarter, rebounding by 44% on Q1 and only 20% below the five-year quarterly average.
The living sector racked up activity of £2.6bn, accounting for 33% of the total and the highest share of the overall market since Q1 2020. Overseas buyers dominated the larger end of the market, with inflows of £4.0bn in Q2 accounting for 56% of total volume.
Ezra Nahome, CEO of Lambert Smith Hampton, said: “While Q2’s subdued volume was expected, the fresh knock to sentiment from the latest bout of interest rate hikes will continue to weigh heavily on the market. Pressure on lenders is starting to build and will challenge the banks to hold their nerve or come to the market with consensual sales.
“Meanwhile, there is a considerable amount of capital patiently waiting on the sidelines seeking out opportunities. After a quieter than usual summer, I expect this to translate into a significant uptick in volume into Q4.
“The latest rate hikes will impact more selectively on pricing compared with the fallout we saw last autumn. Sectors benefitting from rental growth, such as build to rent and industrial, will remain resilient, while bond like investments and more exposed parts of the market, in particular secondary offices, may see further correction.”
