UK property investment volume slipped to a two-year low in Q2, according to Lambert Smith Hampton’s latest UK Investment Transactions (UKIT) report. This was despite some encouraging signs within the living, office and retail sectors.

Download the latest UKIT Q2 2025 report here in full →

Report highlights

• UK property investment volume was at a two-year low in Q2, and it was the first quarter in five years with no transactions above £400m.
• Robust investment volumes in the living sector reflected increased activity in the PBSA, hotel and healthcare segments.
• Retail was the most resilient sector against the five-year trend, while the office sector showed continued signs of improved investor confidence.
• North American inflows held up well in the face of tariffs and wider geopolitical uncertainty, accounting for 60% of total international investment into the UK.
• Purchases by UK institutions more than doubled compared with Q1.

Lack of large deals

A modest £8.8bn of property assets changed hands in Q2 2025, 6% down on Q1’s subdued total and the lowest since Q2 2023. This reflected tariff concerns, the weak economic outlook and persistently high gilt yields, all of which added to investors’ caution.

Transactional activity appeared more resilient. While the Q2 investment volume was 27% below the five-year quarterly average, the number of deals was only 9% below trend, indicating that there is still some depth in the market.

The drop in investment volume in Q2 was largely due to an absence of large-scale deals: no transactions above £400m were completed for the first time in five years. The largest deal of Q2 was Unite Students and Manchester Metropolitan University’s £390m JV funding of a 2,600-bed PBSA scheme at the Cambridge Halls site, Manchester.

Living investment improves

The Cambridge Halls deal capped a solid quarter for the living sectors, with volume rising by 21% q-on-q to £2.8bn on the back of increased activity in the PBSA, hotel and healthcare segments. However, this improved volume was still 16% down on the five-year average.

Single family rental (SFR) was a bright spot within an otherwise lacklustre BTR sector. The volume of BTR investment dropped by 10% to £961m, largely to due to an absence of major multifamily deals. However, the SFR segment accounted for £670m of deals, as investors such as Lloyds Living, Greykite and Packaged Living acquired assets for their growing SFR platforms.

Signs of better sentiment to offices

Signs of recovering investor confidence in the office sector continued to be seen in Q2, with volume of £2.2bn only moderately down on Q1’s five-quarter high. Offices have accounted for about 25% of overall investment in both Q1 and Q2, which represents a significant rebound after the sector’s share of the market slumped to a record low of 15% in Q4 2024.

The improvement in office investment remained heavily focused on Central London, which accounted for a substantial 73% of the sector’s Q2 total. This included two £300m+ deals, namely State Street Global Advisors’ £333m forward purchase of 100 New Bridge Street and Crosstree Real Estate’s £330m acquisition of the Argyll serviced offices portfolio.

Retail was the most resilient of the main sectors against trend in Q2. While the investment volume of £1.6bn was down 11% on Q1, this was only 7% below the five-year quarterly average. Activity levels were also robust - the number of retail transactions was only 1% below the five-year average, albeit measured against a relatively low base.

Retail’s comparatively robust showing was underpinned by a decent quarter for retail warehousing, where a Q2 investment volume of £731m stood 9% above the average. In addition, shopping centre investment rebounded from Q1’s moribund level to £410m, boosted by Hammerson’s £200m purchase of a 59% stake in Brent Cross shopping centre from Aberdeen.

US investment robust despite tariffs

Total overseas inflows amounted to only £3.7bn in Q2, the lowest since Q3 2023. However, North American inflows held up comparatively well in the face of Trump-inspired economic disruption, with total purchasing of £2.2bn. North America represented 60% of total inflows, compared with the five-year average of 49%.

In contrast, inflows from the Far East and Europe were extremely subdued in Q2. Inflows from Asian investors hit a record low of £255m, while purchasing from European investors halved from Q1 to a five-quarter low of £916m.

On the domestic front, institutions, quoted propcos and private propcos all remained net sellers of UK property, but there were some encouraging signs of improvement. Purchases made by UK institutions more than doubled from a record low in Q1 to £1.4bn, and included 42 separate deals, the highest in over three years.

Pricing-wise, despite still-elevated yields in the gilt market, prime yields remained broadly stable across most sectors. The average cross-sector average prime yield hardened by 9bps during the quarter to 5.63%, due to yield compression in a handful of retail sub-sectors.

Ezra Nahome, CEO of Lambert Smith Hampton, commented:

“While Q2’s investment volume failed to improve upon Q1’s figure, it provided notes of resilience amid all of the global volatility and uncertainty prompted by the Trump-led administration. The UK market is on a fundamentally sound footing, reflected in ongoing rental growth across most sectors, while pricing in the UK remains relatively attractive in the wider global context.

“The direction of travel for interest rates and finance costs is offering some encouragement for investors, but stubbornly-high gilt yields, elevated uncertainty and a lack of distress are prompting investors to sit on their hands that bit longer. That said, there are significant opportunities for those bold enough to act, including in the BTR/SFR sectors, where housing supply shortages, strong rental growth prospects and government planning reforms all support an attractive case for investment.”

Download the latest UKIT Q2 2025 report here in full →