The investment market in the UK remained extremely robust during the second quarter of 2015, despite the high level of uncertainty in the run up to the general election in May. We estimate that over £28bn (€39bn) of investment transactions were completed in the first six months of this year, a 50% increase on the same period last year.

The major change in the investment market this year has been an increasing weight of money targeted at the markets outside London, and we estimate that for the first time since 2009 more than 55% of the transactional activity took place outside Greater London. This move has been driven by a number of factors. Firstly, investors recalibration of risk and desire to capture the beginnings of the rental recovery in the regional markets; and secondly the increasingly competitive central London office market.

^{Source: Savills Research}

London has remained the world’s most popular destination for cross-border investment in the first half of 2015, with more than double the level of inward investment seen in Manhattan. Nearly £9bn (€12.5bn) of transactions have been recorded in the first half of the year, a 44% rise in volumes compared to the same period last year. While the majority of purchases in the first six months of this year have been by non-domestic buyers, there has been a rise in domestic activity in London with UK investors accounting for 32% of purchases to date.

The central London market remains highly competitive, and we estimate that there is currently around £40bn of equity targeting this market. This has continued to put downward pressure on yields, and we have moved our prime City and West End office yields down to record lows of 4% and 3% this quarter.

Non-domestic investors have also become increasingly active outside London, with 2014 seeing a record level of non-domestic investment in the UK regions, and 2015 likely to exceed this. This combined weight of money is also putting downward pressure on regional yields, though the traditional 100bps gap between the City of London and the regions has remained.

^{Source: Savills Research} 

Looking ahead we expect that the weight of money targeted at UK property will be sustained, and we expect to see a continuation of the rise in interest in markets outside London in the second half of 2015. We also expect to see more investor demand for secondary assets, with the gap between prime and secondary yields likely to close from its current level of 350bps to around 300bps by the end of the year. Generally we expect that capital value growth will start to slow over the next few years, and the challenge for investors will be to find the rental growth opportunities that will drive better than average returns.