The beginning of 2023 has been a tough one for commercial real estate deal-makers but CoStar's first-quarter agency awards still show much to celebrate.

Lambert Smith Hampton's investment figures for the period highlight a muted few months as the rising interest rate environment continues to hold back decisions. Despite signs of stability returning to pricing, investment came in at £8.1 billion of assets changing hands, a 2% improvement on the final quarter of last year, but 38% below the five-year quarterly average.

There were bright spots, particularly in the build-to-rent and retail warehousing sectors, the latter driven by a preference for property where investors do not need to spend capital. In particular, LSH reports investment in build-to-rent assets hit £1.3 billion and accounted for a record 16% share of total first quarter volume, compared with a 6% share of the market over the past five years overall.

In recent weeks, price recovery and the prospect of more deal activity has been evident, with Blackstone, for instance, closing the largest-ever real estate draw-down fund, but also turning its attentions to UK industrial with its acquisition of Industrial REIT and two of the country's best-known estates for £480 million, as exclusively revealed by CoStar News.

CoStar's latest figures for yields suggest that the sharp weakening in prices seen in recent times is tailing off and that in industrial, for instance, there has been an overcorrection.

Average transaction-based yields on industrial deals of £1 million or more have jumped by 190 basis points in the past two quarters, with much of that increase coming in the first quarter of 2023. They now sit at 6.7%, their highest level in nearly six years but transactions suggest the figure is rapidly turning in the opposite direction. By contrast, average office and retail yields compressed last quarter, by 30 and 25 basis points respectively, in tandem with an increase in investment in both sectors. While their yields remain above those of the industrial sector, the spreads have narrowed significantly since the third quarter of 2022, when they were widest.

Prime yields remain a different story in many areas, with investor demand for the most core assets still strong, as shown by the top sales in the agency awards. Solid occupier demand too, particularly in industrial and alternatives, means that the Royal Institution of Chartered Surveyors' latest sentiment survey saw a "rising share" of the industry believing UK market conditions are stabilising or beginning to improve

Lazari Shops For Bond Street Department Store Icon

Department store group Fenwick's sale of 53 and 63 New Bond Street, including its flagship store at the latter, to Lazari Investments for £428 million pointed to not only the undimmed appeal to investors of the capital's famous retail thoroughfare, but also the challenges facing many of its retailers.

The Fenwick family decided to sell the jewel in the crown to raise capital as it moves toward an increasingly online business. It has said it made the “difficult” decision to sell its home of 181 years to unlock major investment at its stores across the country, including in Newcastle and Kingston-upon-Thames.

Long-term London investment specialist Lazari, backed with financing from Cale Street Partners, wants to carry out a mixed-use redevelopment with sustainability as a priority as Fenwick scales back its presence in the building. It has consent for a five-storey office extension.

Michael Elliott advised Lazari.

Standard Chartered Commitment Underlines Large Banks' Evolving Office Demands

UK multinational bank Standard Chartered's commitment to retaining its 210,000-square-foot headquarters in London at its long-term home in the City was a standout transaction on a number of levels.

The long-term reversionary lease at 1 Basinghall Avenue was a welcome boost to central London's office market given the sentiment around offices globally, and fits in with a trend for large banks to consolidate into less space at premium buildings.

As part of the lease restructure the landlord Zeno Capital and asset manager Oxygen are working with the global bank to undertake a full refurbishment project.

The deal has been a good one for both with the bank ultimately understood to be taking 120,000 square feet over six floors at the 201,901-square-foot office while the remaining circa 80,000 square feet over floors one, two and three will be handed back in phases for redevelopment and leasing.

Standard Chartered was advised by CBRE and Simmons & Simmons. Zeno Capital and Oxygen were advised by Newmark BH2 and Wedlake Bell.

Midlands in Favour With Forward-Thinking Warehouse Occupiers

Danish transport and logistics group DSV's 387,500-square-foot warehouse letting at M&G Real Estate's BG-387 at Brackmills Gateway in Northampton is important for two developing trends: "near-shoring" manufacturing, especially for the pharmaceutical and healthcare industries it houses; and energy efficiency.

Savills reports that there has been a continued move towards reshoring, or making products in-country, particularly among food, automotive and pharmaceutical businesses. Its provisional first quarter data shows manufacturing-related take-up accounting for 31% of demand against a long-term average of 23%.

Gerald Eve points out that industrial occupiers, as with other businesses, are feeling the impact of sustained pressures from the widespread increases in utilities and other costs. They are focused on operational efficiencies while bolstering supply chain resilience and their net zero ambitions.

Because it has a high concentration of some of the most energy-efficient logistics stock in the UK, the Midlands has been a main focus of occupier activity this quarter, accounting for 48% of all UK take-up. Its central location cuts transport costs.

Savills represented M&G. Louch Shacklock & Partners represented the tenant.

M&S Snaps Up Another Former Debenhams Store

Bellwether UK clothing and furniture retailer Marks and Spencer has been speeding up its estates overhaul with plans for a £480 million investment in "bigger, better" stores across the UK. The new store pipeline for 2023-24 includes eight stores in city locations, five of them in former Debenhams department store sites.

In the first quarter of 2023, M&S signed to take over the 135,000-square-foot former Debenhams unit in Manchester's Trafford Centre which has been vacant since 2021. It is moving from an 87,000-square-foot store nearby. The megastore will house a café and a market-style food hall alongside the usual clothing, home and beauty departments and will open later in the year.

Asset manager Pradera, on behalf of the Trafford Centre's owner Canada Pension Plan Investment Board, has focused on bringing in a new mix of retail occupiers, rather than targeting leisure operators, unlikely most other shopping centre operators.

Smith Young represented the landlord. Savills represented M&S.