A relatively respectable finish to the year for investment volumes marks the start of a gradual recovery for the market, according to LSH’s UK Investment Transactions (UKIT) Report.
Reflecting a tentative improvement in financial market conditions and investor sentiment, Q4 delivered 2023’s best quarter for volume. £10.2bn of property assets changed hands in the quarter, up 14% on Q3 and the first £10bn plus outturn since Q3 2022. Despite the uptick, Q4 volume was still 15% below trend and could only push the total for 2023 to £36.7bn, the lowest annual total since 2012 and 32% below the 10-year annual average.
Q4 was boosted by one colossal deal, Regis and Blackstone’s £819m purchase of the Vistry Portfolio, which comprises plans for 3,915 units across 70 sites. This is the largest UK transaction since the market turned in mid-2022 and, notably, marks the first time the build to rent sector has provided the largest deal in a single quarter. The deal also fuelled a standout quarter for the living sector, with volume of £4.0bn the strongest since Q2 2022 and 18% above trend.
Retail was the only core property sector to see above-trend activity in Q4, with volume of £1.6bn 18% above the five-year quarterly average. Relatively strong demand for secure income was reflected in further big moves in the food store space.
In contrast, while Q4 office volume of £2.4bn was up 9% quarter-on-quarter, it was still 37% below trend and capped an ‘annus horribilis’ for the beleaguered sector. Q4’s figure took total office volume for 2023 overall to £9.8bn, the lowest year on record.
Industrial & logistics sector activity was also muted in Q4, certainly compared with the boom period of recent years, with volume of £1.1bn the lowest since the pandemic-afflicted period of Q2 2020 and 51% below the quarterly trend.
Reflecting global investors’ faith in UK property, overseas inflows rebounded by 38% on Q3 to £5.1bn, the strongest level since Q3 2022 and only 14% below average. Blackstone, which was behind both of Q4’s largest deals, by itself accounted for 25% of overseas volume.
In contrast, domestically generated buying slipped further back in Q4, with the main buyer categories all net sellers of property to some degree. The REITS were resolutely in selling mode in Q4, with record low purchasing of just £230m and total net sales at a near-record high of £1.5bn. Institutional activity was more balanced by comparison, with net sales in Q4 amounting to circa £700m.
Ezra Nahome, CEO of Lambert Smith Hampton, commented:
“2023 was certainly nothing to write home about, but the final weeks of the year brought the first signs of a market starting to find its feet in terms of activity and pricing. Notwithstanding a range of both global and domestic political risks, the improvement in the final quarter is a platform for a much better 2024, and we are predicting volumes of closer to £45bn for the year.
“Key to kick-starting the recovery is the outlook for interest rates, which has improved much faster than many could have hoped for. With some predicting base rate cuts to come as early as this Spring, finance costs have become significantly more attractive in recent weeks, and this will be crucial in stimulating activity over the coming months.
“Pressure over whether to stick or twist is starting to build with regard to decisions on asset allocation. Some investors will be able to take advantage of better refinancing options than feared, but, with a pent-up weight of money seeking out opportunity, many others will accept that the conditions are right to commence disposals.”
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