It is Christmas, New Year, birthday and Auntie Glenda’s golden wedding anniversary all at once for Cardiff’s property investment scene. Never before have so many glittery good things descended on it simultaneously.
Super-prime one-off deals such as the £80m BBC/Rightacres transaction and the £70m-ish, sub-5% yield sale of Admiral’s Cardiff HQ are the icing on a party cake already full of fruity deals. Run-of-the mill transactions will reach £150m in 2015 – approaching three times the £60m recorded in 2014. It is more like a 500% increase if you include the two superdeals.
Now two further investment sales are promising to keep the party mood going: National Grid Pension Fund, advised by Cushman & Wakefield, is selling the 112,000 sq ft block at 3-4 Callaghan Square with an asking price of £30.3m (6.5% net initial yield), while the Welsh Assembly government will sell the 79,000 sq ft 1 Capital Quarter for around £20m (also 6.5%).
Nick Lawley, director at Cooke & Arkwright, is among those who expect both sales to show yields hardening.
“The long-standing problem has been a lack of grade-A stock for sale, so we haven’t been able to test the market. But these two buildings are the test. The asking price suggests a yield of 6.5%, but they will do better than that at Callaghan Square (pictured), although I don’t know that it’ll go below 6%.”
Savills investment director Ross Griffin adds: “Never say never about yields going below 6% – particularly in the window before Christmas – but I doubt it will go that low. The appeal is that there is some asset management to do at Callaghan Square.”
Yields are not hardening as fast as some would like, but the occupational market is moving fast enough to give investors hope.
“For the first time institutional investors are coming to look around Cardiff, and they are doing so with the prospect of rental growth in front of them,” says Lawley.
This, rather than the lack of ready-to-sell grade-A stock, may be what has galvanised the investment scene. Headline rents have reached £25 per sq ft on some small suites, and the consensus is that the rest of the market will catch up in the next 12-18 months (see offices feature, p90).
The sale by the Welsh Assembly government of 1 Capital Quarter is still in its early days. The Welsh Assembly government acquired it in 2014, paying £15m ahead of completion; today the potential asking price is likely to be a little north of £20m, with a net initial yield under 6.5%. The asking price is still to be decided, says Matt Phillips, managing partner at Knight Frank Cardiff, who is advising on the sale.
Recent sales seem to prove the growing depth of demand in what has often been a small investment market. Not least of these was the sale by Legal & General of the 167,000 sq ft Helmont House (tenants include developer Rightacres). The block changed hands for £34.6m, a blended yield of 6.08% including income from a hotel. The office element would have reflected a yield closer to 7%. The buyer was Lancashire Pension Fund.
“The buyer pool has absolutely changed,” says Phillips. “Five or 10 years ago it was a handful of well-known names; now it’s very diverse, with a lot of high-net-worth individuals, overseas buyers and funds new to South Wales.”
Looking at the sale of Crickhowell House, Cardiff – the Welsh Assembly government building – on behalf of Aprirose to a private Kuwait family trust for £40.5m, Phillips says overseas funds are joining names such as Mayfair Capital and Columbia Threadneedle to compete for Cardiff sites.
However, James Nicholas, partner at Alder King, says: “The challenge is to bring in the investors who focus on south-east England and the big six regional cities but struggle to get beyond Bristol. They still see a risk – not enough latent demand to drive business in the office market. The raft of funds and propcos that you see in Bristol doesn’t arrive here,” he says.
Callaghan Square and 1 Capital Square could be the deals that see those funds make their – long-awaited – Cardiff debuts.
Cardiff yields take a dive
Two super-prime deals have taken Cardiff yields below 5%. But agents warn the rest of the market will take some time to catch up.
Last month, Legal & General announced a £400m deal to fund Rightacres’ Central Square development. Phase one includes the proposed 150,000 sq ft BBC Wales HQ (£80m) and 1 Central Square, a 135,000 sq ft office development with a 30,000 sq ft prelet to law firm Blake Morgan (£40m). A second speculative scheme at 2 Central Square has been priced at £40m, and the deal could stretch to another £230m for the remainder of the 12-acre Central Square scheme.
The BBC was due to sign its part of the deal – the final piece in a complex jigsaw – last week.
The £70m-ish sale of Admiral’s HQ in Cardiff was part of a €1bn multi-property European portfolio sold by Germany’s Union Investment Real Estate to French investor Amundi Immobilier, advised by JLL. The Germans acquired the 206,000 sq ft block from Stoford in 2012, paying £58.6m.
Justin Millett, director at JLL, says: “Both showed a sub-5% yield for exceptional super-prime assets. Yields one year ahead for good multi-let offices? We’ve been looking at 6% for some time but so little has been traded. 3-4 Callaghan Square will be a good test of the market.”
Cardiff yields last got this keen in 2010, when the sale by Igloo of the BBC’s 170,000 sq ft Roath Basin drama studios dipped below 5%.
