The third quarter of the year saw a slowdown in UK commercial real estate activity that is continuing into the last few months of 2022.

Already spooked by the war in Europe, rising interest rates and inflation, and financial miscues by Liz Truss's short-lived government made it difficult for businesses to be confident about pricing real estate, particularly against other asset classes.

Agent Lambert Smith Hampton recently said the "era of low interest rates and cheap debt" is well and truly over as it reported £10.6 billion of commercial property sales in the third quarter, down 36% on the second quarter and the weakest quarterly total since the third quarter of 2020. And those figures were published before Truss's so-called mini Budget crashed the pound, prompting quicker-than-expected Bank of England moves to lift interest rates to battle inflation.

LSH found that the slowdown was becoming increasingly evident throughout the quarter, with the number of deals in September hitting the lowest monthly total since the height of the pandemic in May 2020.

CoStar’s transaction figures similarly show a slowdown to well below the £16 billion spent in each of the previous two quarters.

Retail has been hardest hit, with the increased pressure on consumers hitting sentiment and investment after a strong beginning to the year. LSH records UK retail volume coming in at £819 million in the third quarter, 42% below average and the first sub-£1 billion quarter since the second quarter of 2020.

But retail is by no means alone. There has been clear evidence of a slowdown even in the booming UK logistics market.

Adviser Gerald Eve's third quarter report highlights a swift correction in investment pricing as the "rising cost of debt impacts the low-yielding sector". It also reports that occupier take-up of 14 million square feet in the third quarter was down 23% on the prior quarter and the lowest quarterly total since the first quarter of 2020. The adviser says pandemic-linked occupier demand has eased and some of the "COVID winners" are now planning to scale back operations, in turn hitting the the rental market.

While total letting activity was down it is still around 20% above the pre-COVID average and the outlook ultimately remains positive, Gerald Eve says.

It is important to remember that the first four months of the year represented the strongest opening to a calendar year that CoStar has recorded. A spell of relative political calm under a new prime minister and good news on a number of global fronts could see a strong improvement in confidence before the year is out.

Still, there have been many significant investment and occupier transactions amid the turbulent times.

Hot spots in the market have continued to attract what can only be described as genuine conviction buyers while long-running transactions, such as our standout investment deal at 21 Moorfields, have still completed, just perhaps at a lower price than had been expected.

While regional office investment slipped, ongoing global appetite for life sciences continued, with Railpen Investment splashing £180 million on the Botanic Place development in Cambridge.

The City and West End London office markets have been on a strong occupier run too. The City has been lifted by a string of major moves by law firms, with close to 1 million square foot of requirements recently launched or under offer at the beginning of October.

Office leasing activity during September in the City of London in fact was some of the strongest all year, according to Savills, with 718,656 square feet transacted.

And a string of famous US names, Blackstone, New York University, Lazard and Apple, have also lifted the wider London and Birmingham office markets with major recent lettings.

The last few months have undoubtedly seen the the year's early optimism fall away. But the deals highlighted in CoStar's third-quarter awards and the continued innovation of the UK's property markets, highlighted by October's opening of London's Battersea Power Station, show a market finding ways to do business.

Australians Lift Market With Mega City HQ Buy

Real estate investment trust Landsec completed the sale of 21 Moorfields, Deutsche Bank's new City headquarters, to an investment vehicle managed by Australia's Lendlease for £809 million, in a bellwether deal for the UK's stop-start real estate environment.

The market has been waiting for the transaction to land for much of the year and, aside from lifting the entire quarter's London data, it realised a handy net cash receipt of £733 million for Landsec.

The price paid is evidence of how things have changed this year at an effective 9% discount to the March 2022 book value and the rumoured £900 million.

But Landsec has made an anticipated development profit of £145 million, representing 25% profit on cost. It also enables to it push on with its strategy to recycle capital out of mature London offices. Following a strategic review in late 2020, Landsec has now sold £1.8 billion of London offices at an average yield of 4.35%.

Lendlease will manage the investment vehicle, on behalf of its investment partners including Australia's TCorp and its own minority interest. TCorp is the Australian state of New South Wales's investment manager and this is its first direct investment in London.

Savills advised Landsec; JLL advised the Lendlease consortium.

Apple Continues To Be Core Occupier at City's Tallest Tower

Central London's office leasing market has done pretty well, all things considered. Cushman & Wakefield described the market as resilient as it reported the third quarter saw 2.46 million square feet in transactions.

A standout, and our winner by virtue of being the most valuable in terms of rent paid, is global technology giant Apple's decision to sign for another 76,140 square feet of offices at 22 Bishopsgate, the City of London's tallest tower.

The 10-year lease is for space across the 20th, 21st and 28th floors with the Mac maker having leased 130,546 square feet in two previous transactions. It now occupies more than 200,000 square feet at AXA-IM Alts and Lipton Rogers' landmark development as it gears up to take occupancy of its 500,000-square-foot headquarters at south west London's Battersea Power Station.

It is unclear what rent Apple will pay, but it is thought to be around £95 per square foot.

Owner AXA-IM Alts also secured the top office rent in the City this year in August at the tower. That deal was global cybersecurity group Palo Alto Networks taking 21,496 square feet at £105 per square feet on the 55th floor.

CBRE and JLL advise AXA-IM Alts while Cushman & Wakefield has advised Apple on its leasing at 22 Bishopsgate.

Maersk Goes Mammoth in Doncaster

While industrial take-up may have slipped in the UK in the third quarter, that should not mask just how strong occupancy figures remain. The massive global investors, such as Prologis, Panattoni, Segro, Goodman and GLP, continue to power ahead.

This time our top deal was GLP's 15-year lease to Danish shipping and logistics company Maersk of the aptly named 600,000-square-foot-plus G-Park Doncaster Mammoth 602 development.

The Doncaster hub is GLP’s third building to be net-zero carbon for construction, another pointer to the move to reduce carbon footprints by leading industrial companies.

Knight Frank and JLL advised GLP

Pradera Lateral Continues Strong Run at Trafford Centre With JD Sports' Biggest Shop

Perhaps the UK's leading shopping centres will find a way to weather what may come from the turbulent economy if Pradera Lateral's remarkable run at Manchester's Trafford Centre is anything to go by. The asset manager was recently appointed to the role by the owner, the Canada Pension Plan Investment Board.

Speaking to CoStar News at the beginning of October, Rhys Evans, director of asset management, said Pradera has completed 600,000 square feet of transactions in 80 deals since taking on the job 15 months ago.

The standout has been the 42,412-square-foot letting to sports retailer JD for its largest store in the former Topshop space, at the same time as clothing retailer Next has expanded nearby.

Evans says an athleisure area is now being built around the JD Sports store with leasing demand remaining very robust.

Smith Young represented the landlord.