Commercial investment volumes reached £4.7bn in March this year, marking the highest level since the same month in 2023 and a 56% month-on-month uptick, according to Savills.
Investment activity in the first quarter hit £10.7bn, becoming the second quarter in a row to post rising volumes.
Savills said in its latest Market in Minutes report that markets are expecting inward yield movements this year, which should stimulate higher investment volumes in the second half.
Notably, the yield gap between offices in London and the rest of the UK was at its widest in March since the end of 1991, at 2.6 percentage points.
Retail warehouse, industrial, distribution and London leased hotels segments all saw inward movement of yields in April, meaning the average prime yield now stands at 6.05%, an inward movement of 13 bps since the start of the year.
The industrials sector is showing a potential break of the historical link between rents and vacancy, posting annualised rental growth at 6.3% in March, only marginally down from 6.6% at the same point in 2023 despite rising vacancy levels.
At the end of last year, MSCI’s vacancy rate was 6.1%. Savills estimated that the vacancy rate would need to reach 10.3% for rental growth to flatline.
Kevin Mofid, director in the commercial research team at Savills, said: “Economic data remains volatile but the general consensus is that a path to a soft landing is achievable. With many markets reaching their expected low points in pricing, we can see investor interest harden which is reflected in the increasing investment volumes.
“While we do expect higher investment volumes in the second half of the year, there will still be further volatility in the short term until there is greater clarity on the timing of the Bank of England base rate cuts later this year.”
Richard Merryweather, joint head of UK commercial investment at Savills, said: “The industrial and logistics sector has seen record amounts of investment in recent years. However, vacancy rates have started to increase but despite this we can see rental growth has remained at levels above what we would have expected in the first three months of the year.
“We know that occupier demand for high quality buildings is strong with 70% of all new leases for grade-A property and we expect rental growth to be maintained across many submarkets and sizes in the industrial sector as occupiers continue to place greater emphasis on ESG.”
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