Partner Article

Investment market sees revival

Increased demand for yield and value has prompted a revival in appetite for regional city centre office stock, particularly among the UK Institutions says Dickon Wood, partner, investment, Knight Frank.

While the core regional centres were the initial focus of regional demand 12 months ago, positive sentiment has spread to the UK’s other major city centres more recently.

This is clearly evident in Newcastle, which has seen a number of large lot-sizes change hands during the course of the first half of 2014. Despite being at the half-way point of the year, turnover for 2014 has already almost matched the total seen in 2013.

Evidence from recent transactional activity and general sentiment in the market suggests that prime, long-income yields in Newcastle stand at c. 6.00%, unchanged during the second quarter, but 25bps lower than at the start of the year.

The largest deal in H1 was Standard Life’s purchase of Central Square South from Parabola Estates. The modern office building, located to the rear of Newcastle’s Central Station, sold for £21.5m, reflecting a net initial yield of 7.61% and carried a weighted average unexpired lease term of 4.5 years.

This further emphasises the demand from UK Institutions for realistically priced regional assets. St James’ Gate was also brought to the market during quarter two. Comprising a modern city centre office constructed in 2004 and let to Baker Tilly and Watson Burton with a weighted average unexpired lease term (WAULT) of nine years. The vendor is seeking a purchase price of £17.44m reflecting a net initial yield of 7.50%.

Both the out-of-town and secondary office investment markets have seen improvement although this has come from a low base. Evidence of yields hardening across the occupational markets has led to transactions taking place where previously stock was not trading. One notable example was the £17.5m sale of the Tesco Bank premises at Quorum Business Park which reflected a net initial yield of 8.01%.

Several other out-of-town office investments have been introduced to the market post Q2, and it will be an interesting gauge of whether the out-of-town investment market continues to move in the right direction.

This was posted in Bdaily's Members' News section by Knight Frank .