There was a sharp decline in UK commercial property activity in the final quarter of 2022.

CoStar's fourth-quarter agency awards celebrate top practitioners in the market getting important deals over the line, but big transactions were fewer in number than earlier in the year, and no doubt harder to come by.

The short-lived Liz Truss government's September mini Budget precipitated a dramatic downturn in investor faith in UK plc and in turn an accelerated increase in interest rates and the cost of debt. All of which was a recipe for a tail-off in transactions, both in investment and occupier markets and across sectors.

It's hard to quantify given the various other economic pressures dampening sentiment, but JLL has recently had a go, suggesting that the "fiscal intervention" wiped out between £3.5 billion and £4.5 billion of commercial real estate transactions.

It had all started so well 12 months ago. CoStar's figures find UK commercial property investment volumes totalled £56 billion in 2022, down 14% from a year earlier but 5% above the 10-year average. But almost £38 billion of that changed hands in the first six months, with volumes sinking 51% in the second half, and with the fourth quarter one of the weakest in a decade.

Transaction activity fell across most of the major sectors in 2022, led by industrial with a 25% year-over-year decline, albeit following an exceptionally strong 2021. Spending on hotels dropped by 20%, while office and retail volumes both fell by around 10%. Student accommodation and build-to-rent bucked the trend, with volumes up nearly 30%, boosted by the sale of a £3 billion-plus student housing portfolio in the closing days of the year.

The leasing story has been a more complicated one. UK office take-up has bounced back to pre-pandemic levels thanks to a strong appetite among businesses to occupy grade A space and strengthen their environmental, social and corporate governance credentials.

Knight Frank reports that more than 1,100 occupier transactions were completed during 2022 across the 10 regional cities of Aberdeen, Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Manchester, Newcastle and Sheffield. The figure was 9% above the five-year annual average of 1,053 and equivalent to 2019 volumes of 1,176. But the market is extremely polarised between the best quality space and secondary or tertiary space.

In industrial, a slowdown in activity by online retailers has led to a fall in take-up. According to Colliers, take-up for large distribution warehouses of 100,000-plus square feet reached 38 million square feet, down 28.5% from the record-breaking 53 million square feet in 2021. However, take-up was 24% higher than the average of the five years prior to the pandemic (2015-2019).

The good news is 2023 has started much more brightly with better news about the global economy and expectations that interest rate rises may have peaked. As importantly, the UK's real estate has repriced at a faster rate than most other markets, which is sparking activity.

By the end of January, advisers Savills was predicting the fall in UK commercial property prices is nearing its end. It says January's yields were a very mixed story, with downwards pressure on parts of retail, stability in logistics and softening in prime office yields. The average prime yield had softened to 5.68%, its highest level since 2008, but Savills is predicting the bottom for pricing is close. The company is therefore predicting transactional volumes in 2023 will come in close to last year's, at around £54 billion.

Despite the more difficult environment, the deals highlighted in CoStar's fourth-quarter awards show a market more than ready for action.

ICG Heats Up Portfolio Market With Cold Storage Buy

As the cold winter nights arrived in December, ICG Real Estate, the real estate division of global alternative investment manager ICG, bought a portfolio of seven refrigerated distribution facilities from Wm Morrison supermarkets for £220 million and lit up the UK's investment market.

The sale-and-leaseback transaction marked a welcome return of a major portfolio changing hands in the industrial sector, something the market had become accustomed to until the tap turned off midway through 2022.

The 4,809,456-square-foot portfolio sale came as part of a strategy by the UK group's new private equity firm owner Clayton, Dubilier & Rice to raise capital via the well-trodden path of quickly turning to freehold disposals. In October 2021, Morrisons' shareholders approved a £7.1 billion takeover bid from the private equity firm seeing off a rival bid from U.S.-based investor Apollo and beating Fortress's efforts in an auction.

It is clear that the chain's £6 billion freehold property portfolio was a critical factor and there had been much speculation from the likes of Sky News and The Times that CD&R would have to sell assets to make a return from a highly leveraged transaction.

CBRE advised ICG while Knight Frank advised CD&R.

GPE Does It Again With Largest Office Lease

GPE, one of London's most successful office developers, is no stranger to eye-catching lettings, but its 321,100-square-feet lease to U.S. law firm Clifford Chance at its 2 Aldermanbury Square, EC2, may be its proudest moment.

The transaction is market-defining on a number of levels. It is GPE's largest office letting for one.

Clifford Chance also built into the lease a number of terms to provide the flexibility occupiers are increasingly looking for. The agreement allows the law firm to lease the first 12 floors, on separate 20-year leases, with options to break at year 15. The law firm can also break at year eight on the fourth floor and year 12 on the fifth floor. Clifford Chance also has an option to hand back the first to fourth floors of the building, up to 89,000 square feet, in an arrangement that expires on 1 March 2024.

The move was the law firm returning to the City and downsizing as it moves to hybrid working. It has occupied around 1 million square feet at 10 Upper Bank Street in Canary Wharf since 2003, when it relocated from the City of London.

JLL and Savills advised GPE. Cushman & Wakefield advised Clifford Chance.

Victorian Plumbing Makes Huge Splash in the North West

The industrial market has got used to online businesses taking giant distribution hubs in recent years. In the final quarter of 2022, listed UK online bathroom retailer Victorian Plumbing Group decided to do just that, signing a 20-year lease for a 544,000-square-foot, purpose-built distribution centre in Lancashire.

The hub is close to its existing operations in Skelmersdale and is scheduled to be completed in autumn 2023. It is moving to Farington Park, Leyland, which is being developed by Canmoor and Caddick with forward funding from Goldman Sachs Asset Management. Goldman and Canmoor Developments completed a funding deal with Caddick Group for Connect 6 in Farington Park for £70.8 million in September 2021.

Knight Frank, Cushman & Wakefield and JLL represented the landlord. Davies Harrison represented the tenant.

M&S's Penchant For Former Debenhams Stores Leads to Major Liverpool Letting

Bellwether UK retail giant M&S made a splash recently, announcing it was speeding up its estates overhaul with plans for a £480 million investment in "bigger, better" stores across the UK.

The new store pipeline for 2023-2024 includes eight "full-line" destination stores in city locations, which supply food, clothing and homewares.

Five of those stores would be in former Debenhams' sites, including a 100,000-square-foot store in Grosvenor's Liverpool One, due to open in the summer. For a recent CoStar News analysis of M&S stores' overhaul and why it has particularly targeted ex-Debenhams stores click here.

Metis Real Estate Advisors represented the landlord. Savills represented the tenant.