"While Q1 reflects a more cautious stance from the market, it doesn’t equate to a standstill"
- Ezra Nahome - Lambert Smith Hampton
The start of 2025 saw a dip in UK property investment volumes, yet beneath the headline figures lies a story of resilience, particularly in the office sector, which delivered its strongest quarterly performance in nearly two years, according to the latest UK Investment Transactions (UKIT) report from Lambert Smith Hampton.
Amid a challenging economic and financial backdrop, total investment volume for Q1 reached £9.3 billion, a 35% drop from Q4 2024’s two-and-a-half-year high, and the lowest since Q3 2023. However, the underlying picture tells a more complex story.
The decline was primarily driven by a notable reduction in large-scale transactions, with just six deals exceeding £200m compared to 13 the previous quarter. Despite this, Blackstone’s landmark £1bn acquisition of the Arch Co portfolio from TT Group stood out, marking the largest single UK deal since Q2 2022 and accounting for 11% of total quarterly volume.
Deal activity overall remained solid. The number of transactions fell by only 16% quarter-on-quarter, matching the five-year average—evidence that investor appetite remains, especially in the mid-market segment. This was particularly clear in the retail sector: while total value halved to £1.8bn, transaction volume was down by only 10%.
Within retail, the shops segment saw standout activity thanks to Norges Bank’s 25% acquisition in a premium Covent Garden and Mayfair portfolio, alongside Shaftesbury Capital and Grosvenor. This portion alone contributed £460m to the quarterly total.
After hitting record lows in 2024, the office sector bounced back in Q1, with volumes rising 10% to £2.4bn. Central London led the resurgence with £1.8bn in deals, including six transactions over £100m. Notably, Modon, a Middle Eastern investor, acquired a 50% stake in 2 Finsbury Avenue (EC2) for £200m, joining forces with British Land and GIC.
In contrast, the living sector — typically a strong contributor — dragged overall figures down, falling to £2.3bn, its weakest performance in two years. The dip stemmed from a lack of major deals, with no transactions over £200m for the first time since late 2022. Nonetheless, build-to-rent (BTR) activity remained robust, totalling £1.1bn, with 90% of that in multi-family developments through forward funding agreements.
Overseas investors continued to play a key role, contributing £5.1bn to the UK market — 56% of total volume. Net overseas investment hit a five-year high at £3.8bn, supported by limited outbound sales. North American investors dominated, accounting for half of inbound capital, while European inflows surged to a record 34% share, or £1.7bn.
UK domestic institutions, however, were more restrained, contributing just £623m, marking their lowest level of investment since the post-GFC period. Publicly listed property companies also remained relatively inactive. By contrast, private property firms showed greater confidence, deploying £2.8bn — 13% above their five-year average—seizing opportunities created by market pricing shifts.
On pricing, prime yields remained largely stable despite early-year volatility in bond markets. The average prime yield across sectors edged up slightly to 5.72%, while the All Property transaction yield dipped by five basis points, indicating a fairly balanced market.
“While Q1 reflects a more cautious stance from the market, it doesn’t equate to a standstill. We’ve certainly seen fewer large-scale transactions and hesitancy from institutions, but activity among agile, opportunity-seeking investors remains healthy," comments CEO of Lambert Smith Hampton, Ezra Nahome, “Recent hesitation from US-backed buyers stems from tariff-driven volatility and broader geopolitical uncertainty. This hesitation reflects a lack of clarity, rather than a lack of interest,"
“Yet in times of volatility, real estate continues to offer a compelling value proposition as a stable, income-generating asset. With expectations building around faster rate cuts, we’re already seeing improved debt conditions—which could set the stage for renewed investor confidence and a stronger second half of the year.”
