Investment in student accommodation fell by 70% on its five-year average in Q1 2023, according to Lambert Smith Hampton’s latest UK Investment Transactions report.
The quarter saw a total investment of £104m in student accommodation from four PBSA deals.
The biggest of these was Urbium Capital Partners forward funding a 293-bed scheme on Huntingdon Street in Nottingham with Metropolitan & District Securities.
Overall investment appetite remained subdued during the quarter, with £8.1bn of assets changing hands, 38% below the five-year quarterly average but a 2% improvement on Q4 2022.
While Q1 2023 was thinner from an activity perspective, with the number of recorded transactions down 19% on Q4 2022 and 43% below the five-year trend, there was an uptick in bigger-ticket deals.
The UKIT report said Q1 2023 saw 20 transactions of more than £100m – double the number in Q4 2022 – which together accounted for 58% of Q1’s volume.
Build-to-rent
However, investment in build-to-rent assets hit £1.3bn and accounted for a record 16% share of total Q1 2023 volume, which compares with a 6% share of the market over the past five years overall.
BTR’s strong showing was the highlight amid a subdued quarter for the living sectors overall.
Q1 2023’s headline BTR deals included Harrison Street, NFU Mutual and Apache’s £302m forward funding of Moda’s 772-unit scheme at Great Charles Street, Birmingham ; Canadian Investor Realstar’s £108m 488-unit Uncle (phase 2) scheme at Whitehall, Leeds; and Sigma Capital’s £205m play to develop 885 units across 11 sites across the UK.
Investment in hotels also fell by 51% from the sector’s five-year average in Q1 2023.
Retail
Among core commercial sectors, the UKIT report said retail saw the strongest volume relative to trend in Q1 2023, with total volume of £1.3bn only 8% below the five-year quarterly average.
Big-ticket supermarket deals bolstered volume, namely Supermarket Income REIT’s £196m purchase of a 25% stake in the Sainsburys Reversion portfolio from BA Pension Fund and Pimco’s £110m purchase of a four-store Morrisons portfolio from M&G.
At the sub-sector level, shopping centres was the strongest performer against trend in Q1 2023, with volume of £232m 7% above average and underpinned by a flurry of purchases by Evolve Estates.
Offices
The UKIT report found that office investment suffered in Q1 2023, with investors remaining cautious in the face of structural and environmental pressures.
A Q1 2023 office volume of £2.6bn was 43% below the quarterly trend, despite being bolstered by Q1 2023’s largest overall deal, MEAG Munich Ergo’s £616m (4.39% NIY) purchase of One FenCourt, EC3, from Assicurazioni Generali.
The regional office markets were especially subdued, with Q1 2023 volume outside of the South East slumping to a record low of just £70m.
Industrial
Industrial was the weakest against trend in Q1 2023, with a volume of £1.2bn just half its average and circa 67% below the boom levels of 2021.
However, in contrast with offices, the market remained busy with much of Q1 2023’s apparent weakness explained by a combination of the impact of the severe price correction on volume and an absence of major portfolio transactions that characterised the boom period. Q1 2023 saw 84 industrial assets change hands, but only three were for in excess of £50m.
Overseas buyers continued to underpin volume during Q1 2023, with total inflows of £3.8bn accounting for almost half the total. That said, net overseas buying amounted to only £1bn, the lowest since the pandemic-afflicted second quarter of 2020.
Notably, in a break with tradition, while overseas buyers were behind most of the largest UK office deals in Q1 2023, total purchasing comprised a record low of nine transactions.
UK institutions were the biggest sellers in Q1 2023, with net disposals amounting to just shy of £1bn in the quarter, the largest of which was Schroder’s £267m sale of its 2 Ruskin Square office development in Croydon to Pension Insurance Corporation.
Ezra Nahome, chief executive at Lambert Smith Hampton, said: “As expected, the first quarter was a generally subdued affair as the market continues to come to terms with a very fundamentally different financial landscape.
“Nonetheless, despite the economic challenges that continue to swirl the market, the correction appears to have largely run its course thanks to more certainty around the path of interest rates.
“As the dust settles on the turbulence of last year, there is a substantial weight of global capital patiently building in the wings. With many investors facing refinancing pressures, I expect a much busier second half of 2023 as quality assets are selectively sold into a ready market.”
Simon Wilson, head of BTR, added: “The strong showing for BTR in Q1 2023 is a testament to the resilience of the wider PRS sector, which continues to drive deal flow and development across BTR and into the emerging single-family housing market.
“This has limited the yield correction in the sector when measured against the falls seen in other asset classes. We see significant appetite from clients in these sectors and expect to see strong deal flow in H2, with single-family housing predicted to see the largest increase.”
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