Investment Quarterly Q3 2024

UK commercial property investment volumes have been broadly stable over the last few quarters. Total investment eased marginally in Q3 2024, with activity in the alternative sectors seeing a notable contraction quarter-on-quarter, while the office, retail and industrial sectors all recorded a marked uptick.

Source: Carter Jonas, RCA, CoStar

£9.5bn was traded in Q3 2024. This was down 4% quarter-on-quarter, 29% below the five-year quarterly average, but 17% up year-on-year. The rolling annual total was marginally above the previous quarter but was 29% below the five-year average of £54bn.

Source: Carter Jonas, RCA, CoStar

Approximately 33% of all investment (excluding multi-regional portfolio deals) occurred in the capital in Q3 2024, which is on par with the share recorded in the second quarter but below the five-year average of 51%. Investors targeted offices in prime locations as well as assets in the living sectors, such as hotels and built-to-rent. Overseas capital continued to support volumes in London, accounting for 56% of the total.

Conversely, investment in the regional markets (UK excluding London) accounted for 67% of the total, in line with the share recorded in Q2 2024. The South East region recorded the highest level of investment outside the capital, with circa £820m purchased in Q3 2024, followed by the West Midlands with £650m.

Source: Carter Jonas, RCA, CoStar

The alternative sectors accounted for the largest share of the quarterly UK total in Q3, at 32%. The industrial sector accounted for 28% of the total, with offices at 23% and retail at 17%. As a proportion of the total, the alternative, industrial and retail sectors were all slightly above the five-year average, whilst offices were well below the average.

Source: Carter Jonas, RCA, CoStar

Q3 2024 saw retail volumes closer to the five-year quarterly average than any other sector at -14%, with offices and the alternative sectors almost 20% below the average. Offices were 41% below the five-year average.

Source: Carter Jonas, RCA, CoStar

Office

Office investment volumes picked up to £2.16bn in the third quarter, up 29% quarter-on-quarter, but 42% below the five-year quarterly average, as spending on large offices remains muted. No deals above £200m were recorded in Q3 2024, with only four deals above £100 million completed.

The quarter's largest deals were all in London. The UK-based investor Royal London Asset Management acquired Atlantic House on the City’s border with Midtown for £179m, reflecting a net initial yield of 7.7%. Elsewhere, Oval Real Estate purchased 14 St George St, W1, for £128m, while Yellow Tree Real Estate acquired Herbal House, EC1, for £101m, reflecting a 6.6% net initial yield.

Despite the overall weaker investment outside London, there were some large transactions outside the capital, with Scotland recording some of the largest deals in the second quarter. The Spanish investor Ponte Gadea acquired Mint, 38-52 West Register St in Edinburgh for £42.5m, reflecting a 5.8% net initial yield, while Abrdn sold Collegelands, Havannah St, in Glasgow for £32m, reflecting a net initial yield of 7.5%.

Industrial

Industrial investment increased by 47% quarter-on-quarter in Q3 2024 to about £2.6bn. Despite the recent uptick, volumes were 19% below the five-year quarterly average. The largest deal was Lone Star’s acquisition of a significant portfolio of UK assets, principally industrial, for circa £600m, reflecting a stabilised yield of over 8%. The industrial assets were mainly in the East Midlands and London and comprise £400m of the portfolio. Elsewhere, Westbrook Partners bought Follingsby Park in Gateshead for £116m, reflecting a 5.4% net initial yield, while a joint venture between KKR and Mirastar acquired a portfolio of five industrial assets located in the North West and Yorkshire and the Humber for £115m.

Retail

Retail investment also increased in the third quarter. At £1.6bn, retail investment was up 37% on the previous quarter but 15% below its five-year quarterly average. Several sizeable prime retail assets, retail parks, and shopping centres supported volumes in the third quarter of 2024. British Land acquired a portfolio of two retail assets, Cyfarthfa Retail Park in Merthyr Tydfil and the Orchard Centre in Didcot for £172m, M&G Real Estate bought Cribbs Causeway Retail Park in Bristol for £108m, reflecting a net initial yield of 8.6%, while JP Morgan purchased 291 Oxford Street for £70m, a 5.8% yield.

Alternatives

Spending on the alternative sectors dropped in Q3 2024, following a strong second quarter. With £3bn transacted, volumes were down 41% quarter-on-quarter, and 18% below the five-year quarterly average. Several hotels, build-to-rent and senior housing deals were completed in the third quarter. For example, USS acquired a portfolio of 3,000 affordable housing units for circa £405m, while Pandox acquired a portfolio of three aparthotels from Starwood Capital for £230m, reflecting a net initial yield of 7.4%. Elsewhere, Aedifica purchased a portfolio of four care homes across the South East and the South West for £61.5m, reflecting a gross yield of 6.5%.

Overseas Investment

Source: Carter Jonas, RCA, CoStar

• Overseas investment in UK commercial property totalled £4.6bn in Q3 2024, up 11% quarter-on-quarter but 22% below the five-year quarterly average. As a percentage of total investment, it accounted for 48%, marginally below the 10-year average of 51.9%.

• US investors had the highest share of overseas investment in Q3 2024, totalling around £2bn, below the previous quarter of £3bn, and 36% below the five-year quarterly average. Notable deals include Lone Star’s acquisition of an industrial portfolio of UK assets mainly in the East Midlands and London for £400m and Westbrook Partners’ purchase of Follingsby Park in Gateshead for £116m, reflecting a net initial yield of 5.4%.

• Far Eastern investors, historically among the most active overseas investors in UK commercial properties, had a quiet quarter, with less than £300m spent, which was below the £1bn spent in Q2 2024 and below the 5-year quarterly average of just over £600m. The quarter's largest deal was Essar Group’s acquisition of Thornton Science Park for circa £120m.

• European investors were active during the third quarter with just under £800m spent. The largest deal in Q3 2024 was the acquisition of three aparthotels in London by the Swedish investor Pandox for £230, reflecting a net initial yield of 7.4%. Spanish investor Ponte Gadea has also been active with two notable deals completed; an acquisition of an industrial site in Hillingdon for £65.5m and a purchase of an office asset on 38-52 West Register St in Edinburgh for £42.5m.

The outlook from Ali Rana, Head of National Investment

Following an understandably quieter-than-normal summer period, we have noticed a recent uptick in market activity, particularly in the industrial, retail warehousing, and living sectors.

With consumer price inflation having been within 30 basis points of the Bank of England’s target for six consecutive months, investors are now more positive and hopeful that this could translate into at least one further drop in Bank Rate this year. If this is true, we can expect higher transactional volumes in the following quarter, particularly if markets react positively to the Budget, with the potential for yields to sharpen as investor competition increases.

The focus remains on core assets in strong locations with increasing demands for ESG-compliant buildings, and this is where yield compression may be witnessed.

We are beginning to see portfolios and larger lot sizes come to the market, which is a further sign of positivity returning to some sectors in the market.