UK property investment remained muted at £8.8 billion in the third quarter, matching the second quarter’s two-year low, according to Lambert Smith Hampton’s latest UK Investment Transactions report, CoStar News can reveal.
LSH says market activity was tempered by uncertainty surrounding the government's forthcoming Autumn Budget, but says momentum is expected to build into the year-end as multiple large transactions complete in the final quarter.
The national adviser said that while the quarter saw fewer headline-grabbing deals, with five transactions over £200 million versus a long-term average of 10, the overall deal count rose 14% quarter-on-quarter, sitting 5% above the long-term average. That underscores a resilient underlying demand base despite macroeconomic caution, LSH says.
After a subdued first half-year, living sector investment surged 35% to £3.8 billion, up 8% on the five-year average. The sector dominated third quarter activity, accounting for the four largest deals, including QuadReal’s £500 million acquisition of the Apollo student housing portfolio. The PBSA subsector stood out, with investment up 60% quarter-on-quarter to £1.3 billion, reflecting sustained appetite for student accommodation assets.
Office investment fell 32% to £1.5 billion, the weakest quarter since the second quarter of 2020. The decline reflected fewer large-scale transactions rather than waning demand, LSH said. Deal count rose 15% above the long-term average. The largest office deal was Delancey and Aware Super’s £140 million and 5.36% net initial yield purchase of Finsbury Circus House, London EC2, as revealed by CoStar News.
Despite muted volume, sentiment is turning positive, LSH adds. Strengthening rental growth for prime stock, rising occupier demand and improving office utilisation are boosting investor confidence, LSH suggested, pointing to 12 £100 million-plus assets under offer in London, including Nuveen’s £340 million sale of 70 St Mary Axe. As such, LSH predicts a strong fourth quarter rebound.
Retail investment dipped to £1.1 billion, 39% below trend and the lowest since the second quarter of 2023. The limited availability of quality shopping centre and retail warehouse stock curbed activity, LSH said.
A notable bright spot was Hammerson’s £319 million acquisition of a 50% stake in Birmingham’s Bullring and Grand Central from CPPIB, the quarter’s largest retail deal. This transaction helped quoted property companies emerge as the only net buyers in the retail space.
The industrial sector recorded volume of £1.8 billion, a 24% rise quarter-on-quarter, though still 28% below the five-year average. Multilet estates drove the recovery, with £1.2 billion transacted, double the second quarter’s level and 22% above trend. Conversely, distribution warehouse investment fell 30%, highlighting investor preference for diversified, income-secure assets, LSH states.
LSH says overseas investors remained the key force, contributing £4.1 billion, up 9% quarter-on-quarter, though still 29% below average. After a run of disposals, net overseas purchasing fell to £936 million, the lowest in five years. On the domestic front, institutional investment slipped 38% to £870 million, while private property companies remained resilient, investing £1.9 billion, 6% below trend.
Pricing wise despite elevated gilt yields, average prime yields tightened by 5 basis points to 5.58%, led by yield compression in the shopping centre segment amid renewed investor confidence.
Ezra Nahome, chief executive of Lambert Smith Hampton, said in a statement: “Q3 was another muted quarter, marked by caution and uncertainty ahead of the Autumn Budget. Yet beneath the surface, we’re seeing signs of life as deal flow has picked up, and stock availability is improving as sellers re-engage.
“Once the Budget passes, we expect a decisive uplift in activity. The volume of large office transactions poised to close in London is particularly encouraging. After a long adjustment period, improving sentiment in the office market is the final piece of the recovery puzzle and we believe this renewed confidence will spread nationwide in 2026.”