Investment Quarterly
Q1 2025

Investment in UK commercial property eased across all major sectors in Q1 2025, with the industrial and retail sectors seeing the most notable contractions quarter-on-quarter.

Source: Carter Jonas, RCA, CoStar

A total of £9.3bn was traded in Q1 2025, representing a 40% decline quarter-on-quarter and 30% below the five-year quarterly average, but broadly in line with volumes recorded in Q1 2024. The rolling annual total remained in line with the previous quarter and was 15% below the five-year average of £53.5bn.

Source: Carter Jonas, RCA, CoStar

Approximately 38% of all investment (excluding multi-regional portfolio deals) occurred in London, above the five-year average of 35% and the 33% share recorded in Q4 2024. Investors primarily targeted offices and build-to-rent (BTR) assets, with overseas capital accounting for 67% of the total.

Conversely, investment in the regional markets (UK excluding London) accounted for 62% of the total. The South East region recorded the highest level of investment outside the capital, with circa £780m purchased in Q1 2025, followed by the East of England with circa £475m.

Source: Carter Jonas, RCA, CoStar

The alternative sectors accounted for the largest share of the quarterly UK total, at 39%; the industrial sector accounted for 19%; and offices amounted to 26%, the second highest share. None of the main sectors recorded volumes above the five-year quarterly average.

Source: Carter Jonas, RCA, CoStar

Office

Office investment volumes eased to £2.4bn in the first quarter, representing a 33% decrease quarter-on-quarter and 32% below the five-year quarterly average. This reflects continued subdued activity in the market for large office assets. No transactions exceeded £500m during the quarter, with only three deals surpassing £100m. Investors continued to target high-quality offices and office assets with potential refurbishment or redevelopment.

Most of the quarter's largest deals were in London. The Abu Dhabi-based investor Modon acquired a 50% stake in 2 Finsbury Avenue for approximately £375m, while the Japanese investor Sumitomo Mitsui Financial Group (SMFG) purchased One Portsoken for £160m.

Several office assets were acquired with the intention of being redeveloped into hotels. For example, Altius Real Estate acquired Morley House for £60m with plans to convert it into a 226-room hotel, while Maya Capital bought Bavaria House with plans to redevelop it into 416 rooms. Elsewhere, IJM Corp Bhd purchased 25 Finsbury Circus for £72.5m with plans to renovate the asset.

Despite the overall weaker investment outside London, there were some large transactions outside the capital. Oval Real Estate acquired Capital Building in Liverpool for £56m, a 11.3% yield, while the French investor Iroko purchased The Brinell Building in Brighton for £27m, reflecting a net initial yield of 7.5%.

Industrial

Industrial investment dropped by 50% quarter-on-quarter in Q1 2025 to about £1.8bn, with volumes also 46% below the five-year quarterly average. One of the largest deals was Indurent’s acquisition of a portfolio of 18 last-mile logistics assets primarily located around Manchester, Birmingham, Reading and Leeds, totalling around two million sq ft for £200m. Another notable deal was Reef Origin's acquisition of a Royal Mail Depot in London for circa £100m.

Retail

Retail investment totalled just under £1.5bn in Q1 2025, 51% up on the previous quarter and 28% below its five-year quarterly average. Several sizeable prime retail assets, retail parks and supermarket deals supported volumes in the first quarter, with two big-ticket deals above £200m. Prada purchased 150 Bond Street for approximately £250m, Realty Income acquired a portfolio of retail parks for £220m, while Zinc Real Estate bought a portfolio of retail parks, several Waitrose and Morrisons supermarkets for circa £62m.

Alternatives

Spending on the alternative sectors also eased in Q1 2025; with £3.6bn transacted, volumes were down 33% quarter-on-quarter, 15% year-on-year, but just 6% below the five-year quarterly average. Several build-to-rent deals were completed in the first quarter. For example, Barings has agreed to a £152 million forward funding deal with developer Glenbrook for 87 - 89 Kirkstall Road, an under-construction, 618 flats, build-to-rent (BTR) scheme in Leeds, while a joint venture between AIMCo and Ridgeback Group acquired the 257-home Equipment Works in Walthamstow for £126m.

Overseas Investment

Source: Carter Jonas, RCA, CoStar

• Overseas investment in UK commercial property totalled £4.5bn in Q1 2025, down 30% quarter-on-quarter but broadly in line with the five-year quarterly average. It accounted for 48% of total investment, marginally above the 10-year average of 47%.

• US investors retained the largest share of overseas investment in Q1 2025, totalling around £1.6bn, but notably below the £4.3bn spent in the previous quarter. Notable deals include Realty Income’s acquisition of a retail parks portfolio worth £220m and Barings’ £152m forward-funding for 618 build-to-rent (BTR) units in Leeds.

• European investors had another strong quarter, ranking second with close to £720m invested in commercial properties in the first quarter. For example, Norges Bank Investment Management (NBIM) has bought a 25% stake in a mixed-use portfolio located in London’s Mayfair district for £306m from Grosvenor, while Prada acquired 150 New Bond Street for circa £250m.

The outlook from Ali Rana, Head of National Investment

The immediate volatility witnessed in the days following Trump's global tariff statement has, to some degree, calmed down. Investors are now waiting to see how the market will react once the 90-day period pause is over. Understanding the full impact of any tariffs that are imposed (assuming they are not further delayed) will take time as the global trading ecosystem unravels.

The general result is that this will likely make companies further delay investment. In the short to medium term, there is, therefore, a higher risk that this will negatively impact the occupational market. Investors will, therefore, be assessing risk and pricing even more cautiously than before. This may mean lower volumes of assets coming to the market as investors, who can afford to, will prefer to yet again “wait and see” how the market fully reacts.

Despite ongoing uncertainty, there are reasons for optimism. The Bank of England’s decision to reduce the base rate from 4.5% to 4.25% on 8 May, alongside expectations of further cuts towards 3.5% by year-end, may help to counteract some of the economic headwinds and support renewed activity. Lower borrowing costs, coupled with potentially reduced competition, mean the remainder of the year could offer attractive opportunities, particularly for investors targeting value-add and core-plus strategies.