Partner Article

Investment

By Dickon Wood, partner, Capital Markets, Knight Frank, Newcastle

The investment market in Newcastle continued to thrive in 2016 supported by strong domestic interest. Prime office yields were unchanged throughout the year, with the relative discount to regional neighbours particularly attractive.

Total investment volumes fell marginally (-2%) in 2016 to reach £181m at year-end. This total is 46% above the 10-year average for the city. Importantly, larger scale deals were a feature of the market in 2016. Two office deals over £50m completed during the year, these being the first examples above this threshold since 2010.

The largest investment deal was the £65m forward funding agreement between Legal & General Capital, Newcastle City Council and Newcastle University. The £65 million paid is an initial payment and will fund completion of two buildings that, once complete, will offer over 200,000 sq ft of Grade A office space. The deal is the largest office investment to complete in Newcastle since 2007.

The other was the sale of Newcastle University Business School for £60m. The building was acquired by Aviva Investors on behalf of its Lime Property Fund, and is located on the former Scottish & Newcastle brewery site. Newcastle University is the long-term tenant having agreed a 35 year lease on the property expiring in 2031.

Supported by these two large transactions, UK investors accounted for all office investment in Newcastle during the year. This represents the highest representation of domestic buyers since 2010.

Other domestic deals included the acquisition of Citygate by Ediston Property Investment Company plc for £18.95m reflecting a net initial yield of 6.5% and the sale of Sandgate House by Legal & General for £10.75m. Interestingly, the deal for Sandgate House reflected a net initial yield of 5.88%.

Prime office yields remained at 6.00% in 2016, now unchanged since 2013. At this level, prime yields are 125 basis points above the market peak of 4.75% recorded in 2007. Strong bidding on prime assets may realise more aggressive pricing in 2017.

ENDS

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