While some UK institutions are exercising caution in the build-up to the EU referendum vote, investors are buying up more regional office assets. In Leeds, approximately 90 per cent of the buildings under offer by value in Q1 2016 originated from non-domestic sources.
Back in 2015 domestic buyers represented 57 per cent of deals in the city, accounting for £186 million out of the total £323 million invested in offices. By comparison, overseas investors made up only about 19 per cent of total investments. Key deals included Legal & General Capital taking a £162 million, 50 per cent stake in Thorpe Park Business Park.
This year, the Leeds office market has had a similarly strong start, with £49 million transacted in Q1 2016. But the investor profile has now changed and overseas investors accounted for 32 per cent of transaction volumes in Q1, including the £16 million purchase of Yorkshire Bank’s headquarters by a Spanish family office.
The absence of UK institutions from the market can be seen across prime equivalent yields. While Q1 2016 yields stand at 5 per cent, identical to the same period last year, they moved in by 25 basis points to 4.75 per cent at the end of 2015, before softening again, mainly on the back of poor sentiment rather than transactional evidence.
There are currently four significant office investments in solicitors’ hands in Leeds, totalling £113 million. As more prime stock is developed out such as Central Square, Wellington Place and City Square House, the increased critical mass will attract more overseas investment capital and also UK funds after the dust of the EU Referendum has settled.
We believe that, if available, prime 15 year stock would achieve a yield of approximately 5.25 per cent which provides a good buying opportunity in the current market.