Just £7.3bn of property assets changed hands during Q4 2022, the weakest outturn since the lockdown-afflicted quarter of Q2 2020. Investment volumes in Q4 2022 contributed to a respectable total of £54.1bn for the year as a whole, with 2022 being very much a ‘game of two halves’ due to the mid-year shift in financial conditions. 

Download the latest UKIT Q4 2022 report in full here.

The smaller end of the market held up notably better in Q4 than the larger end. Q4 2022 saw only ten transactions in excess of £100m, far removed from the 50 seen in Q1 2022 and 60% below the quarterly trend. Meanwhile, 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.

Strong performance for retail

Notably, for the first time in over seven years, retail was the strongest performer for volume against trend of the core asset classes in Q4. Retail volume hit £1.6bn, 14% above the five-year quarterly average. However, 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.

Life sciences boost office sector

Of all the sectors, buying aversion centred most of all on offices. Total volume slumped to £1.3bn in Q4 2022, the second weakest outturn 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. However, ongoing global appetite for life sciences remained the one clear bright spot for offices amidst the wider malaise - volume of life-sciences-linked assets amounted to circa £500m in Q4.

Absence of large portfolio deals impacts industrial volume

Meanwhile, the long, strong run for industrial volume came to an abrupt end in Q4, with volume of £1.6bn being just half Q3’s level and 33% below trend. However, this mostly reflected an absence of the 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.

Average pricing broadly back to pre-pandemic position

Reflecting a sharp recalibration of pricing across the market, the All Property average transaction yield moved out by 48bps in Q4 to stand at 5.59%, putting average pricing broadly back to the pre-pandemic position. 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%. Meanwhile, somewhat counterintuitively, the average office transaction yield moved in by 20bps in Q4 to 5.58% (albeit following a sharp outward movement in Q3), a result swayed to some extent by activity in the life sciences space.

Ezra Nahome, CEO of Lambert Smith Hampton, commented: “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.”

Download the latest UKIT Q4 2022 report in full here.