Bolstered by major transactions, such as those at Brindleyplace and Snowhill, Birmingham attracted higher investment volumes than Manchester last year. But of the £5bn that investors spent on UK office property outside central London, Manchester still proved to be a popular location.
According to CB Richard Ellis, while £460m was spent on offices in Birmingham, the total amount for the North West – the vast majority of which was spent in Manchester – was £390m.
The major deals included Luxembourg-based Aerium’s £180m purchase last March of Allied London’s 3 Hardman Street at Spinningfields, at a 6.35% yield, and Warwickshire-based IM Properties’ purchase last September of Allied’s 1 The Avenue, also at Spinningfields, for £18.6m.
Since last summer, the market has been quiet, with the highlight being HIMOR Group’s £22.9m purchase in January of Ship Canal House (see box).
Manchester missed out on a major deal last November when the Department for Transport pulled the £48.5m sale of Piccadilly Gate to German bank HIH Global Invest because of the government’s new policy on disposals.
Agents argue that plenty of investors, in many cases put off by London’s steamy prices, would like to buy in Manchester, where yields have come in during 2010 to 6%. However, purchasers are struggling to find the prime opportunities they desire.
“At the minute, funds are not under pressure to spend, so it could be a quiet year,” says Jonathan Mills, head of Jones Lang LaSalle’s national investment team.
King Sturge partner Simon Merry adds: “Theoretically, there could be as many as 50 buildings that you could buy in Manchester, but no seller wants to crystallise a loss. There’s a list as long as your arm of people wanting to get into the market, so it could be quite a frustrating year.”
European players
Mark Rawstron, head of GVA’s Manchester office, points to the range of investors targeting the city, from private property companies such as HIMOR Group to major European players like Aerium and HIH.
But to place money, say agents, investors will have to consider a number of options, including factoring some risk into their purchases and buying less-than-prime, or exploring prefunding options with developers.
As Allied London moves to secure a 180,000 sq ft prelet to Lloyds Banking Group at a proposed 325,000 sq ft scheme at Spinningfields, agents point to such an opportunity for investors.
“This year will be tough,” says Knight Frank partner Steve Carrick, “but funders can take more of a risk by examining angles, such as quality buildings where there is some vacancy.”
Indeed, according to CBRE director Rehan Zaman, HIMOR’s purchase of Ship Canal House – a centrally located, but historic building – shows that funds are becoming less rigid in their thinking. “If it had been brought to market this time last year, it would have failed to sell. The market was so fixated on prime,” he says.
Mark Williams, partner with WHR, argues that investors are beginning to think differently, with one investor seeking an asset with sub-five-year income, albeit with quality tenants, in order to factor some risk into the price. “The yield would probably be 8%-plus,” he says.
Manchester features on many investors’ wish-lists, but for the market to flourish, funds need to work up an appetite for risk.
Investor profile: HIMOR Group
Over the past 12 months, HIMOR Group has shot to prominence in Manchester. The investment vehicle sits within well-known entrepreneur Bill Ainscough’s group, and its managing director is his 33-year-old son, Will.
Last May, HIMOR sold the 100,000 sq ft 40 Springardens office building to Climate Change Capital for £47.5m at a 6% yield. In January, it bought the 100-year-old, 72,000 sq ft Ship Canal House on King Street from Catalyst Capital for £22.9m, a 6.7% yield.
Will Ainscough, formerly a London-based Healey & Baker agent, returned north in 2005 to work for his father’s group, which also contains housebuilder Wainhomes and developer Langtree.
Formed in 2009 and named after High Moor in Parbold near Wigan, where the family is based, the firm has clear objectives, says Ainscough.
“There’s a lack of stock in the market, so the strategy is very opportunistic. We’re looking for office and retail acquisitions. Offices are likely to be in Manchester. Retail will be in the north.”
HIMOR aims to spend £15m-£20m in the next 24 months. It has a net asset value of £35m and £58m of assets under management. “We’d like to double that in the next five years,” says Ainscough. “In the long-term, we’d like to create a well-diversified portfolio.”
The firm is in talks with four banks to raise finance, but Ainscough insists that HIMOR will not overstretch itself, perhaps leveraging its funds up to £90m: “The most aggressive leveraging we’ll do is 65% debt.”
He explains that HIMOR will generally hold stock, and that its sale of 40 Springardens, which it bought from Langtree in 2009, is not typical: “We’re not looking to flip buildings. We would have held 40 Springardens, but Climate Change approached us with a correct valuation.”
Ship Canal House then made sense. “We were looking for an office building to place the capital from the 40 Springardens sale,” says Ainscough. “We got a lot more for our money.”
One to watch: GMPVF
The Greater Manchester Property Venture Fund’s investment pot looks set to double to £400m.
The fund is part of the Greater Manchester Pension Fund, the pension scheme for the 10 local authorities of Greater Manchester. Currently, 3% of the GMPF’s £11.5bn is allocated to regional investment, but that is set to increase to 5%, explains GVA’s Damian Masters, an adviser to the fund.
GMPVF will partner Argent on the 270,000 sq ft One St Peter’s Square, and is on the shortlist of bidders for the BBC’s 180,000 sq ft Manchester landholding.
