Morley Fund Management has bought the HMV music store on Edinburgh’s Princes Street for £16.4m.
The 25,000 sq ft store was purchased from Scottish Widows Investment Partnership at a net initial yield marginally above 4.2%, arousing fresh fears that the retail investment bubble will burst sooner rather than later.
However, the deal is subject to a rent reversion in September 2008, bringing the equivalent yield closer to 4.7%.
Robert Wood, assistant fund manager at Morley, said: “When viewed in the context of what we believe to be a reasonable reversion, I honestly don’t believe the initial yield is that sharp.
“To be able to buy a well configured store on one of the best retailing streets in the UK, on an 18-years unexpired lease to a good quality covenant, the deal looked pretty attractive.”
He emphasised that Morley does not normally buy stand-alone units but, when the deal was presented at short notice, the fund manager decided to acquire for its retail fund, the Norwich Property Trust.
In the last six months £70m worth of individual retail units have been sold on Princes Street.
The Levis jeans store at 109 Princes Street will sell imminently for £4.5m to a private Irish investor at a 4% net initial yield.
Although this has a higher zone A rent than HMV’s, it demonstrates the intense competition on Princes Street.
However, Chris Macfarlane, partner at King Sturge in Edinburgh, stated:
“Despite the shift in yields to the mid-4% in the last 18 months, I would not be surprised if we saw more activity.
“A lot of people have seen an opportunity to take profits, hence the volume of activity we have seen recently”
Savills acted for Morley and Culverwell represented Scottish Widows in the HMV deal.
References: EGi News 14/12/05
