Commercial real estate investment in the UK came in at £14.2 billion in the first half of the year, a 53% reduction from first-half 2022 volumes of £30.6 billion and 37% below the 10-year average, according to exclusive figures from JLL.

JLL said the first-half year result is the lowest since 2020 when volumes fell to £13.3 billion because of COVID-19 lockdowns. The adviser expects the low activity to continue for much of the remainder of 2023, with expected investment volumes of £30 billion to £35 billion by the year-end.

But it says longer term expectations are more optimistic, with the results of JLL’s latest investor survey showing 85% of investors anticipate an increase in UK real estate investment volumes by the second half of 2024.

Living volumes overtook offices in the second quarter, reaching £2.2 billion, while the latter only hit £1.6 billion. Offices' half-year investment was £4.4 billion, accounting for 31% of the total. That is a 61% decrease on the first half 2022, when volumes reached £11.4 billion, and is 51% below the 10-year average.

There are bright spots. JLL says as the first half progressed, the UK saw a resurgence in student accommodation investment, totalling £1 billion in the second quarter after £134.5 million was invested in the first quarter.

It says increased home and international student accommodation numbers, a shortfall in supply and strong rental growth has driven the activity. That view is supported by its survey results, with 41% of investors choosing the student housing sector as the most resilient over the next 12 months and 27% saying it would continue to provide the greatest opportunities over the next five years, alongside the life science and multi-let industrial sectors.

Industrial and logistics has also seen a pick-up in activity, with a 102% increase quarter-on-quarter from £724 million in the first quarter to £1.4 billion in the second quarter. This brought the first half totals to £2.1 billion, a 66% decrease on first-half 2022 volumes of £6.4 billion and 32% below the 10-year average.

International investors remain prevalent, comprising 53% of investment volumes in the first half of the year. The Americas led the way, contributing 23% of total investment, with the USA being the largest individual source of capital, investing £2.7 billion.

This was followed by Asia-Pacific investors accounting for 17%, with Singapore as the largest source investing £1.1 billion in the first half.

Survey results indicate that this is likely to continue, with 47% of investors selecting the USA as the most active source of international capital over the next 12 months, behind only the Middle East, chosen by 48% of respondents.

In terms of investor expectations for total returns, the survey finds the largest amount, at close to 34%, are expecting negative returns this year.

The UK is leading the way on sustainable building practices, JLL says.

The focus on environmental and social impact has either remained the same or increased for 100% of respondents. The information companies use to make decision-making are changing, with real energy use and emissions data becoming increasingly important. Thirty-two percent of respondents in the survey chose this as the biggest driver, surpassing EPC rating (28%) and certification score (22%).

Cameron Ramsey, EMEA and UK capital markets research and strategy director said in a statement that while the economic environment still feels very challenging, recent data suggests the "worst is behind us and conditions are likely to improve over the coming months".

"We expect transaction volumes to stay low in the short term but pricing will stabilise and confidence will improve as we move towards next year. Capital is available for the right opportunities, and these will increasingly emerge across the risk spectrum.”

JLL said it expects next year's recovery to be led by logistics, life sciences and living.