The latest edition of Lambert Smith Hampton’s UK Investment Transactions report reveals that investment over the past 12 months reached £51.4bn – a level not seen since before the start of the 2007/08 financial crisis.

Yields at lowest levels since Q2 2008

The report also finds that transaction yields have fallen to 6.06% in the past quarter. At this level, commercial property is the most expensive it has been since the middle of 2008, at the tail-end of the last boom. The extremely strong demand for prime property such as the Bluewater Shopping Centre – in which Land Securities recently purchased a 30% stake at a yield of 4% - is one of the main reasons for this inward yield shift.

The growing popularity of property among retail investors, who invested almost £500m in property funds in May alone, has enabled UK institutions to remain the largest net investors into the commercial property market for the second successive quarter. Total investment from UK institutions during the first half of 2014 was £7.4bn, compared with £4.5bn for the same period last year.

UK institutions dominate in the regions

The dominance of institutions is reflected in the increased investment in the regional property markets, where such investors are traditionally more active than overseas investors, who have been very prominent over the last two to three years. Regional investment hit £9.5bn during the first six months of the year compared to £5.9bn in the first half of 2013.

Ezra Nahome, CEO of Lambert Smith Hampton, said: "The pick-up and shift in investment activity over the last few months means we have seen a fundamental change in the market: deal volumes are up; investors, especially UK institutions, are much more active in the regions; and prices outside London are now on the rise. The growing appetite for property funds from retail investors has played an important role in the current market dynamic.

Growth in capital values driven by investors

"The growth in capital values is investor driven, therefore the question is for how much longer can inward yield shifts sustain this increase? We expect it to continue in the short term, but more fundamentally investors will need to rely on rental growth to drive total returns from 2015 onwards."