Central London office deal volumes more than halved in the first quarter as the number of UK institutional buyers fell to a trickle, new data from Lambert Smith Hampton (LSH) has revealed.

Total UK commercial property deal volumes slumped 27% to £11.7bn in the first three months of the year.

However, this understates the true extent of the market slowdown because half the total was accounted for in January alone.

One of the areas to suffer the most marked drop in activity was central London offices, where the occupational market is expected to be hit hard in the event of the UK leaving the EU.

Deal volumes slumped from £4.6bn to £2.2bn year on year, and they were also 31% down on the 10-year average.

Institutional buyers were particularly wary.

UK-based institutions purchased £2.9bn of commercial real estate in the quarter - the lowest quarterly total for three years.

More worryingly, their activity tapered off sharply as the quarter went on. Only 13% of the deals done by UK institutions in the quarter took place in March and in the office market the portion was even lower at 5%.

A quarter of two halves

“It’s been a quarter of two halves,” said Ezra Nahome, chief executive of LSH.

“The market enjoyed a bright January, buoyed by strong momentum from the end of last year, but, predictably, volumes have tailed off since then.

“It’s no surprise that investors have taken a step back in the face of growing uncertainty over the outcome of June’s EU referendum.

“We saw it in 2014 ahead of the vote on Scottish independence and we’re experiencing it again now – investors do not like uncertainty.”

Industrial sector rallies

However, there were some bright spots in the market. Industrial was the one core sector to record deal volumes above its 10-year average, up by 9% at £1.2bn.

Demand for regional property also remained solid, with £4.5bn invested in the quarter - 6% above the five-year average.

Furthermore, there is no suggestion that the slowdown is affecting pricing. Average transaction yields continued to move in during the quarter, reaching 5.49%.

“Brexit concerns aside, the market remains in a fundamentally strong position and we don’t see any reason why activity won’t bounce back if the country elects to remain part of the EU on 23 June,” said Nahome.