“The UK market is on a fundamentally sound footing, reflected in ongoing rental growth across most sectors, while pricing in the UK remains relatively attractive in the wider global context”
– Ezra Nahome – Lambert Smith Hampton
UK property investment volumes dropped to a two-year low in the second quarter of 2025, according to Lambert Smith Hampton’s latest UK Investment Transactions (UKIT) report. This decline occurred despite signs of resilience in several sectors, including living, office and retail.
Total investment reached £8.8bn in Q2, marking a 6% decline from the previous quarter. It was the weakest performance since Q2 2023. The slowdown was largely driven by ongoing investor caution linked to high gilt yields, economic uncertainty and concerns over trade tariffs.
While the headline figure fell sharply, transactional activity proved more robust. The number of deals completed was only 9% below the five-year average, even as overall volumes were 27% lower, suggesting a degree of underlying stability in market activity.
A key factor in the volume drop was the absence of large-scale deals. For the first time in five years, there were no transactions above £400m. The largest deal of the quarter was the £390m joint venture between Unite Students and Manchester Metropolitan University, funding a 2,600-bed purpose-built student accommodation (PBSA) scheme at the Cambridge Halls site in Manchester.
The living sector recorded solid investment activity. Quarterly volume rose 21% to £2.8bn, driven by a rise in PBSA, hotel and healthcare transactions. However, this figure remained 16% below the sector’s five-year quarterly average.
Within build-to-rent (BTR), single-family rental (SFR) emerged as a more active sub-sector. Total BTR investment fell 10% to £961m, reflecting a lack of large multifamily transactions. In contrast, the SFR segment contributed £670m, supported by acquisitions from investors such as Lloyds Living, Greykite and Packaged Living, all expanding their SFR platforms.
The office market also showed signs of renewed investor interest. Investment reached £2.2bn, only slightly below Q1’s five-quarter high. Offices made up approximately 25% of total investment in both Q1 and Q2, up from a low of 15% in Q4 2024.
Central London accounted for a substantial portion of this recovery, representing 73% of total office investment in the quarter. Two major transactions stood out: State Street Global Advisors’ £333m forward purchase of 100 New Bridge Street, and Crosstree Real Estate’s £330m acquisition of the Argyll serviced offices portfolio.
Retail remained the most resilient sector compared with historical trends. While total retail investment fell 11% from Q1 to £1.6bn, it was just 7% below the five-year average. Deal volume in retail was particularly stable, just 1% below trend, though the baseline remains relatively low.
Retail warehousing helped bolster these figures, posting £731m in investment, 9% above the long-term average. Shopping centre activity also picked up, reaching £410m. This included Hammerson’s £200m acquisition of a 59% stake in Brent Cross shopping centre from Aberdeen.
Foreign investment totalled £3.7bn in Q2, the lowest level since Q3 2023. North American capital remained more consistent, with £2.2bn in purchases despite geopolitical instability. This region accounted for 60% of all overseas inflows, up from a five-year average of 49%.
By contrast, inflows from Asian and European investors fell sharply. Asian investment hit a record low of £255m, while European inflows halved compared to Q1, dropping to £916m, the lowest level in five quarters.
On the domestic side, institutions, quoted property companies and private firms all remained net sellers. However, UK institutions increased their activity, more than doubling their acquisitions from Q1 to £1.4bn. This included 42 individual deals, the highest total in over three years.
Prime yields largely held steady across most sectors despite ongoing pressure from gilt market trends. The average cross-sector prime yield edged down by 9 basis points to 5.63%, driven by modest yield compression in select retail sub-sectors.
“While Q2’s investment volume failed to improve upon Q1’s figure, it provided notes of resilience amid all of the global volatility and uncertainty prompted by the Trump-led administration,” said Ezra Nahome, CEO of Lambert Smith Hampton. “The UK market is on a fundamentally sound footing, reflected in ongoing rental growth across most sectors, while pricing in the UK remains relatively attractive in the wider global context.”
Nahome continued, “The direction of travel for interest rates and finance costs is offering some encouragement for investors, but stubbornly high gilt yields, elevated uncertainty and a lack of distress are prompting investors to sit on their hands a bit longer.”
“That said, there are significant opportunities for those bold enough to act, including in the BTR/SFR sectors, where housing supply shortages, strong rental growth prospects and government planning reforms all support an attractive case for investment.”