Investment market in brief

Robust Q3 activity but sentiment softening


Investment sentiment in the Big Nine office markets gathered some momentum over the summer, resulting in some significant transactions. Total Q3 volumes amounted to £485 million, 13% below the ten year quarterly average but a considerable improvement on the previous quarter. However, the increasing government restrictions in the past few weeks has slowed the momentum gained over the summer.

There were two deals over £100 million, £133.3 million sale of 1-3 Lochside Crescent on Edinburgh Park and the largest city centre deal at 55 Colmore Row, purchased by German investor, Union for £105 million. Further deals included £55 million sale of 100 Bristol Business Park and two large transactions in Glasgow city centre: 150 Broomielaw (£40 million) and 45-67 Queen Street (£30 million).

The strong out-of-town activity follows a handful of circa £20 million deals agreed during Q2, including 2620 Aztec West in Bristol and Cobalt Business Park in Newcastle. Out-of-town investment has suited purchasers in the current climate, being more accessible and less dependent on public transport. However, city centre transactional activity picked up later in the quarter.

"Assisted by the two largest deals, overseas buyers have accounted for 66% of activity this quarter, followed by UK property companies (17%) and UK Institutions (16%). However, some of the domestic purchases are also supported by overseas capital."

Deals in the pipeline indicate a solid start to Q4 figures, such as transactions at Quartermile 3 in Edinburgh and 1 Colmore Square in Birmingham, which completed in October for £86.75 million to Oval RE at 6.2% NIY. However, while there remains a weight of money, sentiment has dipped and some investors have delayed acquisition strategies as they consider the prospect of a price correction, concerns around tenant default / rent collection and the increasing potential for restrictions in the rising second wave of Covid. There is an increased level of stock coming to the market, but buyers are being selective, and it will take time for deals to be agreed.

On the MSCI monthly index, regional office average equivalent yields stood at 7.03% at the beginning of the year, moving to 7.32% by the end of May but since have stabilised to 7.37% by the end of September. Evidence of yield movement on prime stock has been scarce, apart from two deals in Birmingham and Edinburgh where yields have moved in slightly.

Mark Williams Principal and Managing Director

Regional Investment

TOTAL FOR Q3

£485 million ▼13%

Down on the 10 year quarterly average

PRIME YIELD

4.75%

PREVIOUS PEAK (2007)

4.50%


VOLUMES BY CITY


VOLUMES BY INVESTOR TYPE

Edinburgh

£133m

Birmingham

£131m

Glasgow

£82m

Overseas investor

66%

UK property company

17%

UK Institution

16%

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