Average property yields have fallen to their lowest point in more than a decade, according to Lambert Smith Hampton’s Q2 UK Investment Transactions report.
The all-property average transaction yield tightened by 22 bps in the second quarter to 5.45%. It was the lowest level since Q4 2017 and the sharpest quarter-on-quarter shift in four years.
The research suggests the trend is a reflection of a flight to quality, particularly in retail. High street retail yields reached a low of 4.14% as activity focused on central London in deals such as Motcomb Estates’ £297.5m purchase of Burlington Arcade at a yield of 3.2%.
Meanwhile, UK shopping centre investment volume hit £120m – one of the lowest quarterly totals on record and 74% down on the long-term quarterly average.
Property investment as a whole totalled £13.5bn in Q2, closely in line with Q1’s level but 8% down on the five-year average. The number of deals, however, was 13% above the average.
Ezra Nahome, chief executive of LSH, said: “Security of income is evidently paramount in today’s market. While Q2’s healthy volume underlines the continuing strong appetite for UK real estate, the sharp fall in the average transaction yield points to a clear focus of demand towards quality assets, rather than changes in pricing.”
He added that the UK market was likely to remain resilient, despite the “dial on Brexit uncertainty” having been turned up in recent weeks, adding: “Arguably, the deepening issue around global trade with the US is no less a factor in the market, and may even sharpen the focus of overseas buyers towards the UK, particularly from the Far East.”