Just £7.3bn of commercial real estate changed hands during Q4 2022, according to research from Lambert Smith Hampton.
Researchers said it was the weakest outturn since the lockdown-afflicted quarter of Q2 2020.
Investment volumes for the whole year totalled £54.1bn. LSH called 2022 a “game of two halves” due to the mid-year shift in financial conditions.
It said the smaller end of the market “held up notably better” in Q4 than the larger end. There were only 10 transactions in excess of £100m recorded for the quarter, compared with 50 in Q1 2022 and 60% below the quarterly trend.
However, activity in the sub £20m bracket – where reliance on debt is typically less prevalent – was relatively more resilient, with the number of recorded deals 34% below trend during the quarter.
Retail was highlighted as the strongest performer for volume compared with other core asset classes, for the first time in more than seven years.
Retail volume hit £1.6bn, 14% above the five-year quarterly average. This was dominated by two substantial deals, one of which was Fenwick’s £430m sale and leaseback of its flagship London store on New Bond Street, W1, with Lazari Investments.
Buying aversion centred largely on offices. Total volume slumped to £1.3bn in Q4 2022, the second weakest performance on record after the pandemic of Q2 2020.
Central London bore the brunt of this, with record low volume of £310m comprising just a handful of recorded deals.
Ongoing global appetite for life sciences remained a lone bright spot for offices amidst the wider malaise – the volume of life-sciences-linked assets amounted to circa £500m in Q4.
Meanwhile, the long, strong run for industrial volume ended in Q4, with volume of £1.6bn being just half Q3’s level and 33% below trend.
LSH said this mostly reflected an absence of especially large portfolio deals that were synonymous with the recent boom. Aided by repricing, there remains a depth to demand in the sector thanks to ongoing growth expectations – Q4 saw 100 recorded deals, only circa 25% down on the post-pandemic boom of the past two years.
The average transaction yield for all properties moved out by 48bps in Q4 to stand at 5.59%, which has restored average pricing back to its pre-pandemic position, according to LSH.
Sector-wise, industrial saw the sharpest outward movement, with the average transaction yield shifting up by 131bps to a two-year high of 5.01%.
The average office transaction yield moved in by 20bps in Q4 to 5.58%, following a sharp outward movement in Q3. LSH said this was swayed “to some extent” by life sciences activity.
LSH chief executive Ezra Nahome said: “Despite the economic challenges, the financial turbulence of last year has quickly given way to a more stable environment in which deals can be done. For quality assets, the rapid bout of repricing that we saw in the latter part of 2022 has almost run its course, aided by more certainty around the path of interest rates.
“With plenty of dry powder to deploy in the market, from both domestic and overseas sources, refinancing pressures are likely to generate a host of buying opportunities in the coming months, driving a resumption of stronger transactional activity in the second half of the year.
“However, with recession looming, investors will understandably be wary of a downturn in occupier demand and securing income is now fundamental.”
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