Investor sentiment has been affected by conflict in the Middle East, but it came too late to materially impact upon Q1 activity, which remained resilient, according to Lambert Smith Hampton's latest UK Investment Transactions (UKIT) report.

Download the latest UKIT Q1 2026 report here in full →

Total Q1 investment volume reached £10.8bn. While this was well below the record £21.6bn recorded in Q4 2025, it was 16% higher than Q1 last year and only 13% below the five-year quarterly average.

Activity at the larger end of the market remained a notable feature of the quarter, with 11 deals above £200m. The largest by some distance was Unite Group’s £723m acquisition of Empiric Student Property.

Although the outbreak of conflict in the Middle East at the end of February unsettled financial markets, transaction activity held up through the remainder of the quarter. The number of deals above £1m was broadly in line with average levels and improved as the quarter progressed. March was Q1’s strongest month for both deal count and volume, rising 11% and 31% respectively on February.

By sector, office investment proved the most resilient relative to Q4 2025, with total volume of £3.1bn, up 31% on the same period last year. However, activity was driven primarily by overseas investors acquiring large Central London assets, while the South East remained notably subdued.

Retail investment totalled £1.2bn, which was 32% below trend and 35% lower than Q1 last year. Industrial and logistics activity also softened following a strong Q4 2025, with Q1 volume of £1.4bn the lowest since Q4 2023 and 55% below average. This was particularly evident in distribution warehouses, where volume of £507m was the lowest in almost nine years.

Overseas capital continued to play a major role, accounting for £5.1bn, or close to half of total Q1 investment volume. However, against a backdrop of heightened geopolitical uncertainty, North American investment fell to a 10-quarter low of £2.0bn, while European investment rose to a six-year high of £2.1bn, surpassing North American inflows for the first time since 2019.

Domestic buying activity, by contrast, eased after a strong Q4 2025. Institutional investment totalled £1.1bn, 29% below average, and the trend towards net selling resumed, with Q1 disposals reaching £1.3bn. Quoted propco investment came in at £910m, 18% below average, although this was boosted by Unite Group’s acquisition of Empiric Student Property.

While the conflict triggered volatility across financial markets, its effect on pricing was only partially evident by the end of Q1. The cross-sector average prime yield softened by eight basis points to 5.63%, reflecting 25bp outward movements for both regional offices and budget regional hotels, to 6.75% and 5.50% respectively. The All Property average transaction yield also moved out, albeit only marginally, by 2bps to 6.67%.

Ezra Nahome, CEO of Lambert Smith Hampton, said:

“While the outbreak of conflict in the Middle East has clearly affected sentiment, it came too late in Q1 to materially influence the headline numbers, with March emerging as the busiest month of the quarter for transactions.

“It is still too early to know how events will unfold over the coming weeks. Even if a workable resolution is reached quickly, rising inflation, higher gilt yields and increased finance costs have altered the backdrop for 2026. Few are expecting a major downturn, but talk earlier in the year of yield compression now seems wide of the mark.

“That renewed uncertainty over pricing is likely to weigh on activity in Q2. Even so, I remain quietly confident that once stability returns, the market will recover momentum relatively quickly.

“And despite the volatility, UK property continues to offer compelling fundamentals. Recent global instability only reinforces the appeal of secure income-producing assets, while the UK stands to benefit from its position as a global safe haven. At the same time, constrained supply of high-quality space across the market should continue to support rental growth, even if occupier demand softens in a more challenging economic environment.”

Download the latest UKIT Q1 2026 report here in full →