Property investment volumes slipped to a three-year low in Q3 2023, according to Lambert Smith Hampton, with transactions below £20m dominating the market across all the sectors.
Overall, the number of transactions were up by 31% quarter-on-quarter, due to the resilient activity at the smaller end of the market. The thinnest area was the £20m to £50m lot size bracket, where the number of deals more than halved from Q2 and was the lowest since 2008.
LSH tracked £7.4bn of property assets changing hands in Q3 2023, down by 14% on Q2 and £10.6bn recorded for the same period last year.
Overseas buying slumped to £3.2bn in the three months to the end of September versus £5.3bn recorded for the year before. This investment category was led by North America, with inflows of £1.1bn, followed closely by the Far East, with inflows of £1bn.
Offices saw the biggest drag on the overall total, reflecting apathy over increased hybrid working, ESG mitigation costs and the mismatch in price expectations between buyers and sellers. Office investment volumes totalled £1.7bn, the third lowest on record and below last year’s £2.5bn.
Retail investment volumes proved the most resilient in Q3, rebounding by 26% on the previous quarter to £1bn, with retail warehousing the best traded sub-sector. In Q3 2022, UK retail investment volumes stood at £819m.
LSH’s research found the industrial and logistics sector was the most actively traded, buoyed by continuing rental growth prospects and relatively tight supply. The £1.9bn traded in Q3 comprised 113 deals, almost twice that seen in Q2 and the highest quarterly tally since Q2 2022, when it totalled £3.3bn across 124 deals.
Elsewhere, investment volumes across the living arena were notably under par in Q3, totalling £2.1bn, down by 31% on Q2 2023’s level. The equivalent investment volume for the living sector in Q3 2022 was £3.18bn.
The research showed all property average transaction yields moved out by 39 basis points in the past three months to 6.12% – its highest level since Q1 2014. This was driven by a 196bp year-on-year outward shift in the average office yield. At the end of September last year, the all property average transaction yield stood at 5.19%.
Ezra Nahome, chief executive of Lambert Smith Hampton, said: “Q3’s subdued volume was predicted and reflects both the usual lull seen over the summer and the impact of another bout of rate rises over the spring. That said, encouragement should be taken from the clear uptick in volume and especially deals done in the latter part of the quarter.
“Importantly, recent weeks have seen the debate shift from where interest rates will peak to when they will start coming down. This change is giving more certainty for buyers and sellers over pricing and this should translate into a tangible improvement in volumes as we head into 2024.
“The current point in the market arguably represents the very start of a new cycle, with the difficulties over the past year reflecting the painful adjustment away from a long era of ultra-low interest rates. The UK market has seen a swifter, sharper correction than other parts of the globe, and this represents a great opportunity to find value for first movers.”
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