Newcastle’s investment scene is about to lay golden eggs – or it isn’t. The looming £40m sale of Wellbar Central – a consonant separating it from a celebrated chicken variety, the Welbar – will decide it.
The 120,000 sq ft Newcastle office block is a big buy in a market more used to £15m-£20m deals. And with the quoting net initial yield nudged down to 6.05%, if it sells at the asking price it will set a new yield low.
But will it sell at that price? It’s a moot point, made harder to call by the suddenly flourishing state of the North East investment market. Newcastle volumes hit £89m in the first six months of 2015, 10% up on the same time last year and way above the £57m-a-year five-year average, according to BNP Paribas Real Estate. The year will end well at over £100m, says director Aidan Baker.
Newcastle has benefited from the tsunami of money washing over UK regional offices – approaching £5bn in the first six months of 2015. Investors say their heightened interest in the city is a consequence of a UK-wide trend and – hard news for locals to bear – not much to do with property dynamics north of the Tyne.
So says David Wise, co-manager of Kames Capital’s Property Income Fund, a big spender in Newcastle whose recent buys include Nexus House (£7.72m sale price, 6.75% net initial yield), Newburn Riverside (£20m, 8%) and the 61,500 sq ft Blaydon Trade Park (£6m, 7%), the last two from UK Land Estates.
“It’s not so much Newcastle as the UK regions,” says Wise. “It’s nothing special about Newcastle, although if we looked at Newcastle a year ago it would have felt a lot colder. We’re more comfortable today, but that feeling is not unique to Newcastle.”
Baker insists the strengthened occupational market has produced the rise in temperature noticed by Kames. “We have six months of grade-A supply left, incentives have halved to six months rent free for five years of lease, and net effective rents are £18.50 to £20 per sq ft. That’s what is attracting investors,” he says.
Bill Lynn, director at Lambert Smith Hampton, says: “The investment market is really pretty active and aggressive across all sectors. Fuelled by pent-up demand and a lot of money, there are quite a lot of deals that are now happening. There’s greater supply in the market, but it’s very competitive and a lot of properties are going to more than one round of best bids. It’s very reminiscent of 2005, 2006 and 2007, almost to the point that you wonder if anyone can remember that it all happened.”
All of which makes now a good time to sell and UK Land Estates has grabbed its chance.
“Selling Newburn Riverside and Blaydon Trade Park to Kames Capital when void rates were low and values improving will allow us to reinvest the capital in a development programme that is intended to fulfil this gap in the market,” says Keith Taylor, managing director of UK Land Estates.
The firm plans to plough the proceeds back into speculative development on its Team Valley, Tyne Tunnel and Teesside Estates.
Which brings us back to Wellbar Central. Baker thinks developer Moonglade Holdings will enjoy no lack of bidders.
“It’s a trophy building, and will attract the funds. We’re already talking to people but there is no sale timescale,” he says. The sale would nudge yields back from the 6.25% recorded earlier this year.
Others aren’t so sure. Simon Beanland, senior director at Bilfinger GVA, is working on £135m worth of deals, and needs no persuading that Newcastle is attracting big spenders. But the size of the Wellbar deal worries him.
“It could fall between two stools – more expensive than the £15m-£20m lots that get a dozen or more potential buyers, but not big enough for the overseas investors. It might attract the life or retail funds,” he says.
Beanland is also a sceptic about yields. “We got to 6.15% in late 2013 and there hasn’t been much proven rental growth,” he says.
Dickon Wood, partner at Knight Frank, agrees that yields haven’t moved much. Fresh from advising on the sale of 28,000 sq ft Nexus House on behalf of Greenridge Abra Fund, he says: “Kames Property Income acquired this asset for £7.73m, just over its asking price of £7.45m, reflecting a net initial yield of 6.75%. Prime office yields have remained at 6% for the past 18 months, offering higher returns than other regional cities such as Manchester and Leeds.”
Newcastle isn’t yet in the big league of regional office investment locations. But with yields beginning to twitch and with vendors risking bigger price tags, it’s well on the way.
Golden eggs
• Cobalt Business Park was sold to a Salford-based private investor for £22.6m, 8.5% net initial yield.
• Kuwait-based investment manager Dimah Capital paid £15.95m for Cobalt 22, 7.5% net initial yield.
• Maya Capital purchased Cobalt 15 for £13m at 10% net initial yield, and Cobalt 9b for £8m, 7.9%.
• St Nicholas Buildings were acquired by a private investor for £13m, 8.5%.
• Haymarket Hub was sold on behalf of a private property company to another property company. The asking price was £9.5m. LSH is retained on the lettings.•
Threadneedle Trust bought West Chirton Industrial Estate for £4.4m, 8.5%.
Source: BNP Paribas Real Estate, Knight Frank, LSH
