Reflecting a growing trend, the living sectors (student property, PRS, hotels and healthcare) played a major role in driving overall volume in Q3. Investment into living trebled from Q2 to a near-record £5.5bn, while student accommodation accounted for the UK’s two largest deals; Unite Group’s £1.4bn acquisition of the Liberty Living portfolio and DWS’s £600m purchase of the Vita Student portfolio. 

While living was pivotal to Q3, the recovery was broad-based. Industrial volume more than doubled to £2.1bn in Q3, the fourth strongest quarter ever and boosted by two major portfolio deals. UK office volume also recovered, albeit less emphatically, to reach £4.9bn in Q3, 22% above Q2 but 16% the below the quarterly average. 
 
In sharp contrast, and despite significant re-pricing over the past 12 months, many investors remain averse to UK retail. Retail volume barely topped £1bn in Q3, making it the weakest quarter in 18 years. It was particularly dismal for shopping centres, with only a handful of smaller centres traded amounting to less than £100m.

Investment recovered across all buyer types in Q3. UK institutions invested £2.6bn, close to the 5-year average, albeit they remained net sellers, partly reflecting their need to maintain cash reserves to guard against redemptions from their property funds. Investment from overseas buyers improved to £5.6bn in Q3 but was still 19% down on the five-year average. Notably, North American investors appeared most willing to accept Brexit risks and take advantage of the weak pound, taking the leading share of overseas volume.

Q3 saw notable contrasts in volumes from a regional perspective. At £4.4bn, Greater London volume remained relatively subdued at 28% below the quarterly trend, largely reflective of significantly below par activity in the Central London Office market and the absence of any ‘mega deals’ in the quarter.

Collectively, the UK regions outside London enjoyed a relatively strong Q3, with total single asset volume of £5.4bn 10% above average and exceeding London’s total for only the fifth time this decade. Relative to trend, the most active region was the East of England, boosted by Goldman Sachs’ £300m purchase of Croxley Park, Watford and Legal & General’s £120m forward funding of an office development at Fletton Quays, Peterborough. 

After rising in each of the previous two quarters, the All Property average transaction yield moved back inwards in Q3. It hardened by 32 basis points to 5.38%, bringing it back close to the 11-year low of 5.34% recorded in Q4 2018. The inward yield movement reflected the increased number of better-quality larger assets being traded during the quarter.

Ezra Nahome, CEO of Lambert Smith Hampton, commented: 

“It was pleasing to see volume back on track after a dismal Q2. Despite all the uncertainty, deals are still clearly being done, albeit the flurry of portfolio deals which overhung that quarter was integral to Q3’s rebound.  

“The marketplace arguably remains no less challenging than it was earlier in the year. While there is no shortage of capital out there, the uncertain climate and a lack of distress is weighing on appetite to do deals among both buyers and vendors alike. 

“Understandably, all eyes are on the political situation right now. Some sort of resolution to Brexit will do much to restore certainty in the market, yet with only days to go until the EU departure date it remains highly unclear. If there is a breakthrough, I expect restoration of confidence to translate into a very busy start to 2020.”