FOTBW_PPT_Feb_2023

Total Return -3.8% One Month

Income Return 0.5% One Month

Yield Impact -3.9% One Month

Rental Value Change 0.1% One Month 1.5% One Year

NATIONAL OFFICES FLY ON THE BROKERS' WALL

-12.9% One Year

5.6% One Year

-17.1% One Year

Source: MSCI UK Monthly Property Index, December 2022

VIEW ON THE GROUND

DEAL WATCH

PRICING Initial yields (%)

While the national office market in 2022 experienced the highest H1 investment volumes transacted since 2018, activity in the second half of the year was the lowest since 2008. The final quarter of the year was particularly sluggish, with £1.0 billion transacted – the lowest quarterly volume since 2013. Over 2022 as a whole, £7.3 billion was transacted, 21% down on the 2021 volume (£9.2 billion) and 19% below the 10-year average of £9.0 billion. As evidenced by key deals across the markets, prime yields are tentatively levelling out this year, having been pushed out by 100-125 basis points during 2022. Tier 1 cities – Birmingham, Edinburgh and Manchester – remained at 5.75% in the first month of the year, whilst Tier 2 cities – Glasgow, Leeds and Bristol – stood at 6.00%.

Nestle HQ, Gatwick Price: £57.5m Yield: 6.63%

Outlook

Jan 2023

Nov 2022

Manchester

5.75%

5.75%

Stable

Status: Sold Comments: Nestle HQ with 9.8 years unexpired. Sold by C&W in Dec.

Stable

Edinburgh

5.75%

5.75%

Stable

Birmingham

5.75%

5.75%

Stable

Bristol

6.00%

6.00%

Stable

Glasgow

6.00%

6.00%

Dalton Place, Manchester Price: c.£44.3m Yield: c.5.75%

Stable

Leeds

6.00%

6.00%

Greater London

Stable

6.00%

5.75%

Status: Bidding stage Comments: Interest on the property is reportedly closer to an 8.0% yield.

In January La Française Real Estate Managers acquired the recently refurbished 101 Barbirolli Square, Manchester. The 87,000 sq. ft building sold for £47.0 million at a yield of 5.7% (initially expected to achieve 4.50%) which is seen as a benchmark for the prime Tier 1 market.

101 Barbirolli, Manchester Price: £47.6m Yield: 5.70%

Vendor expectations and what buyers are willing to pay remain divided, weighing on transactional activity. Dalton Place, Manchester is one example of this, with the current owners Tesco Pension Fund marketing the 76,800 sq. ft property at £44.3 million, seeking a 5.75% yield while the market is coming in at 8.00%+. The building is let to WeWork until 2038. It remains to be seen as to whether pricing will move out more toward market expectations, or remain in line with values put forward by the vendor. There is tentative evidence that improving liquidity is being seen for prime opportunities which meet highly defined criteria on income length, covenant strength, ESG, build quality and location. Buyers looking at secondary stock are attributing a significant risk premium and consequently whilst the outlook for prime yields is stable, secondary markets are expected to see values slip over the year ahead.

Source: Cushman & Wakefield

Status: Sold Comments: Multi-let with 4.8 years unexpired to break. Sold off market.

Quarterly investment volume (£m)

£5,000

£4,000

Halo, Bristol Price: £70.35m Yield: 5.75%

£3,000

£2,000

Status: Bidding stage Comments: Newly built in 2022 with excellent ESG credentials. Multi-let with 10.56 years WAULT.

£1,000

£0

2010

2015

2020

Source: Real Capital Analytics

Source: Cushman & Wakefield

Source: Cushman & Wakefield