Research - 25/04/2024

UKIT Q1 2024: Stuck on Amber

Living stars as Q1 investment dips back below £10bn

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The UK investment market began 2024 in relatively subdued fashion, with Q1 volume slipping back below the £10bn mark, according to LSH’s UK Investment Transactions (UKIT) Report.

Download the latest UKIT Q1 2024 report here in full →

£9.9bn worth of UK property assets changed during the quarter, down 9% on Q4 2023. Volume was 17% below the five-year quarterly average, but a modest 5% up on the same quarter of last year.

The living sectors were a major driver of Q1 activity, with volume of £4.6bn representing 49% of total investment, it second-highest market share on record. While strong demand for BTR and PBSA assets continued to underpin overall living volume, it was the hotel & leisure segment that shone brightest in Q1 with volume surging to a five-year high of £1.7bn.

Unusually, Q1’s two largest deals were both hotel transactions. Starwood Capital purchased a ten-hotel portfolio from Edwardian Group for c. £800m, while MCR Hotels bought the BT Tower, London for £275m and will convert it into a hotel. Travelodge’s £210m acquisition of 66 hotels from LXi REIT also contributed to a stellar quarter for hotel investment.

Retail was the only one of the more traditional core commercial sectors to record above-trend volume in Q1, with £1.7bn transacted, 20% higher than the five-year average. The largest retail deal of the quarter was Blackstone’s £230m purchase of 130-134 New Bond Street, W1, comprising 31,000 sq ft of luxury retail space.

Industrial volume of £1.6bn was 20% up on Q4, but still 32% below the five-year average. The sector’s most noteworthy deal saw Ares Management acquire a 1.2m sq ft portfolio from Royal London Asset Management for £212m. However, large-scale industrial transactions were otherwise thin on the ground, with only one other deal in excess of £100m.

Meanwhile, the struggles of the office sector intensified in Q1 with investment dropping to £1.7bn, down 36% on the previous quarter and 55% below the five-year average. Q1 was the second weakest quarter in the last 15 years, with only the pandemic-afflicted period of Q2 2020 seeing a lower volume. Central London was home to the only two £100m-plus office deals of the quarter. The larger of these saw Royal London Asset Management acquire a 50% stake in 1 Triton Square, London, for £193m, forming a JV with British Land to reposition the asset as a life sciences hub. 

While overseas buyers remained the most active investors into UK property, cross-border inflows slipped to £3.5bn, down 34% on Q4 2023. This was despite investment from North America rising by 26% to £2.5bn, nearly a third of which came from Starwood’s £800m hotels deal. Investment from all other global regions was well down on the previous quarter.

Ezra Nahome, CEO of Lambert Smith Hampton, commented:

“Though sentiment has improved markedly from where we were six months ago, many investors remain content to sit on their hands.

“Expectations that better times lie ahead, in the form of falling interest rates and improving economic conditions, has left much of the market stuck on amber. An uncertainty to commit has not been helped by fluctuating signals in the global economy and geopolitical environment.

“However, with the period of price discovery essentially done with, now is perhaps the best opportunity to strike a deal, with expectations of falling interest rates set to drive a degree of yield compression later in the year. Offices and long income index-linked assets are starting to appear mispriced, and hence these areas arguably offer some good opportunities in the short term”.

Download the latest UKIT Q1 2024 report here in full →

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