The UK commercial property market saw its strongest investment figures in the fourth quarter of last year since the third quarter of 2022 with £13.1 billion of assets changing hands.
According to LSH, the transaction level was 11% above the five-year quarterly average.
It said a large-scale deals underpinned the strong end to the year, with seven transactions over £400 million, the highest in eight years and comparing with only two deals of this magnitude in the third quarter.
The living sector was once again pivotal, with £4.4 billion of assets changing hands across the constituent sectors in the fourth quarter, 27% ahead of the quarterly trend. This included a strong quarter for hotels, with volume of £1.5 billion boosted by Q4’s largest overall deal, Baupost Group and KKR’s £900 million acquisition of the Adia UK hotel portfolio.
The sectors were central to UK volumes throughout 2024, with record annual turnover of £18.3 billion surpassing 2017’s previous high by 7%. Hotel investment volume of £5.5 billion was the highest since 2017, and a record year for build-to-rent, where volume of £5.2 billion was boosted in the fourth quarter by Starlight Investments’ £500 million purchase of three build-to-rent assets, two in Manchester and one in Basildon, from Renaker.
LSH said the record year for living provided "respectability" amid another challenging year for the market, with total all-sector volume amounting to £46.3 billion, up 24% on 2023’s total and only 2% below the five-year average.
Living sectors accounted for an unprecedented 39% of 2024’s volume. If this is discounted, volume was its lowest level since 2011.
Nevertheless retail also had a standout final quarter, with volume of £3.1 billion standing at almost twice the trend level and the strongest outturn since the second quarter of 2015. LSH explained: "Allied to relatively attractive pricing, green shoots in the occupier demand and the re-emergence of rental growth in pockets of the market have brought many investors back to retail."
The fourth quarter retail volume included a standout quarter for retail warehousing, where volume of £1.4 billion was well over twice the trend level and the highest since the second quarter 2007, boosted by Redevco’s £518 million purchase of the M7 UK Retail Portfolio. LSH added that the revival of interest in shopping centres has been more pronounced of late, with Q4 volume hitting £1 billion for the first time in eight years, boosted by Land Securities’ £490 million (7.50% net initial yield) purchase of a 92% stake in Liverpool One.
LSH described 2024 as "nothing short of an annus horribilis" for the embattled office sector. UK-wide office volume in the fourth quarter amounted to only £1.8 billion, down 44% on average, and brought the annual total for 2024 to a record low of £7.3 billion.
While all parts of the market were subdued, given its scale, central London was again the main drag, with the fourth quarter volume of £1 billion standing 50% below trend and including only three deals over £100 million.
Overseas inflows rebounded by 55% quarter-on-quarter to £6 billion, 4% above trend. North America continues to dominate overseas inflows, with total purchasing of £4.1 billion in Q4, led by Baupost and KKR’s acquisition of the Adia Hotel Portfolio.
Investment was very mixed between the domestic-buyer categories, LSH said. Private propcos were the most acquisitive domestic buyers of 2024, with £3 billion of purchases in Q4 taking the total for the year to a record high of £10.8b billion.
The largest private propco deal in Q4 was Ballymore and Lateral Property Group’s £500 million mixed-use redevelopment commitment at 120-136 Camley Street in the King's Cross Knowledge Quarter, London.
Institutional purchasing remained subdued once again in the fourth quarter, with acquisitions of £1 billion standing 42% below average. The long run of net-selling by institutions showed no sign of abating, with total net sales of £2 billion the highest since the aftermath of the Brexit vote in 2016. M&G was a particularly active seller in Q4, with £345 million of disposals across 11 deals.
Ezra Nahome, CEO of Lambert Smith Hampton, said in a statement: “2024 finished strongly for both activity and volumes, as buyers and sellers rallied to get deals done before year end. But the solid-looking year on the surface belies a story of extremes; the inexorable rise of the living sectors contrasting with the structural pains of the office sector and the ongoing faith in the UK from North American buyers vs the retreat from the institutions.
“Into the New Year and sentiment has taken a fresh knock, forcing investors to digest the deteriorating conditions in the financial markets and shifting expectations on interest rate cuts. However, I remain cautiously optimistic that conditions will settle, and 2025 will yield a slight improvement on last year’s volume, even if pricing remains sticky and fails to harden as previously hoped.
“While the recent bond market wobble will keep some investors on the sidelines, many others will find themselves under renewed pressure to sell, providing a ready supply of income-driven opportunities for equity-backed buyers.
“We should bear in mind that the fundamentals in the occupier markets remain broadly positive, and this extends to offices to some degree. The UK market offers real value when viewed in the international context, especially given the pound’s relative retreat."