Q3 transactions more than doubled those in Q2, indicating improved investor sentiment. However, the investor profile has shifted significantly over the past decade. Institutional investors, which accounted for 43% of investment volumes in 2014, now represent only 8%. Their activity is expected to remain low due to reduced portfolio weightings towards offices and maturing pension schemes.

Overseas investors have been the most active, accounting for 44% of investment volumes in the first three quarters of 2024. This surge is driven by large sale and leaseback transactions and portfolio sales, particularly from French SCPI funds. These investors are attracted to the smaller lot sizes and liquidity of the UK regional markets, with 92% of assets traded since 2019 being below £50m.

UK property companies have also been active, making up 26% of volumes, mainly seeking alternative use opportunities for secondary assets. The diversity of landlords is increasing due to the lack of repeat investors.

The UK regional markets are attracting capital due to significant pricing discounts compared to major European markets and central London. Prime regional office yields are at 7%, while 18 major European city markets are below 5%. This pricing dynamic appeals to French SCPIs, which are relatively location agnostic. ASPIM reported that French SCPIs net collected €907 million in Q2 2024 and €1.672 billion annually, indicating continued activity from these investors.

Private Middle Eastern investors are also expected to be active, attracted by higher yielding core assets in the Big Six regional markets. Additionally, private capital from other European countries, including Spain and the Czech Republic, is sporadically entering the market.

The expectation of yield hardening will result in increased investment activity in 2025. Sentiment from investors has been improving in the market which has been exemplified by Ashtrom Properties acquisition of Central Square, Leeds for £78 million, reflecting a yield of 8.00%.

Additionally, the occupational market fundamentals remain robust, with a supply and demand imbalance in both Greater London and the South East and the Big Six. Total take-up in Q1-Q3 2024 was 5% and 10% above the five-year average in these regions, respectively. This increased take-up is pressuring existing supply levels, leading to rental growth for prime and grade A space. Eleven submarkets achieved record rents in Q1-Q3 2024, and the average prime rental growth forecast for the Big Six in 2024 is 9%.

Given the current pricing levels and positive occupational metrics, it is not surprising that liquid and decisive investors are eyeing the UK office market.