The latest edition of the UK Investment Transactions (UKIT) report reveals that Investment in UK commercial property reached £12.9bn in Q2 2017, up 5% on Q1 and 2% ahead of the five-year average for the second quarter.

Record quarter for Distribution Warehouses

Q2 also saw evidence of an improvement in liquidity and depth of market demand, with the 5% improvement in volume in Q2 accompanied by a 10% increase in the number of deals.

However, the pattern was mixed between the sectors. Strong investor sentiment towards UK distribution was reflected in impressive volume. £1.9bn of industrial and logistics assets changed hands in Q2, the highest in ten quarters, driven by a record £1.3bn volume for distribution warehouses.

Institution demand improves

UK institutional demand is showing signs of recovery after the fallout from last summer’s Brexit vote. While UK institutions were net sellers to the tune of £0.8bn, they acquired £1.8bn in Q2, the highest since Q1 2016.

Notably, institutions continue to cash in on Central London offices, disposing of £1.1bn in Q2 (the vast majority of which was purchased by overseas buyers) while investing heavily in the alternative sectors, in particular hotels and student accommodation.

Average prices remain stable

Notably, average prices have remained remarkably stable over the 12 months since summer 2016. The All Property average transaction yield in Q2 was 5.65%, a single basis point lower than Q1’s level and identical to the Q2 2016 figure.

However, as with volume, price stability at the All Property level masked notably diverging patterns between sectors. Q2 average yields for shopping centres, retail warehouses and regional offices stand over 80 bps higher than 12 months ago, while average yields for industrials, particularly South East multi-lets, were considerably lower.

Ezra Nahome, CEO of Lambert Smith Hampton, said “As predicted, the investment community took June’s snap election in its stride, with both volume and the number of deals actually improving on Q1’s level.

“While uncertainty abounds in the market, there remains a substantial weight of money from both domestic and overseas buyers for UK Real Estate. With rental levels holding up relatively well, or even growing strongly in the case of industrial, investors’ return forecasts for 2017 as a whole have improved significantly throughout the first half of the year.

“This improving picture should encourage more investors to bring stock to the market. While Q3 may prove to be quiet, as it often is over summer, we are confident that Q4 will be very busy quarter, taking volume for 2017 as a whole closely into line with our initial forecast of £50bn, a notable improvement on 2016’s total”.