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London Brexit fears see Asian property investors choose Dublin

Brexit has turned Asian property investors off London. Now, they’re reappearing in Dublin.

For the first time ever, Asian investors accounted for three of the top five investments in office buildings in the Irish capital in 2018, according to estate agents Knight Frank.

This included the biggest deal, the €176m (£158m) sale of one of the city’s largest office developments to Hong Kong-based CK Properties Ltd.

Across the board, analysts have been suggesting that London would see a Brexit-related dent to its property market. Earlier this year, a report from Savills indicated that Asian-based investors’ interest in the capital had tailed off, falling behind the level of demand among UK-based buyers.

It is of course no secret that many of the UK’s large financial services firms have decided to move some of their operations from London to elsewhere in Europe because of concerns over Brexit.

Dublin has been a big winner in this respect, and now it seems to be benefitting from top-line investment, too.

According to Knight Frank, when all of the year’s transactions are completed, the overall value of commercial property deals will have jumped from €2.5bn (£2.25bn) in 2017 to €3.5bn (£3.15) in 2018.

The office market accounted for the biggest share of transactions, something the firm said was due to strong occupier demand and competitive pricing compared to other European capitals.

Around 25% of Brexit-related relocation announcements between June 2016 and September 2018 involved moves to Dublin, according to Knight Frank — putting the city ahead of Luxembourg, Paris and Frankfurt.

Bank of America and Barclays, which has rented prime city-centre real estate a stone’s throw from Ireland’s parliament, are two high-profile banks that chose Dublin for their post-Brexit European Union hubs.

But Dublin’s real estate market has also long benefitted from its thriving technology district, known as Silicon Docks.

In May, Google announced it would spend €300m on the purchase and redevelopment of a series of warehouses in the district, dramatically expanding its existing European headquarters.

And Facebook, which also has its European headquarters in Dublin, announced it was set to quadruple its office space in the city, with room for 5,000 extra staff, by signing a long-term lease for a new 14-acre campus.

Knight Frank’s report also points to a big increase in Dublin’s private rental market, with several global institutional investors spending upwards of €1bn (£899m) in the sector.

Favourable long-term demographics, rising rents, and new investment-grade properties coming on stream are three of the main factors that encouraged the growth, the report says.

Source: Yahoo Finance UK

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Boost to Scotland’s commercial property market as year comes to an end

MORE than £2.5 billion is expected to have been invested in Scotland’s commercial market by the end of the year, according to one global property company.

Some £2.485bn worth of deals have already been completed, and Savills says this will round up by Hogmanay.

The figures mark a 10% increase on those from last year.

Nick Penny, head of Scotland at Savills and director in the investment team, said: “Regardless of Brexit, the simple economic argument around supply and demand of good quality offices is very compelling for Scotland.

“Our development pipeline and general market confidence was paused for longer than the rest of the UK following the financial crash due to uncertainty around the independence referendum. The result is a critically low level of Grade A office supply in Edinburgh and Glasgowthat makes a strong case for rental growth and new development.

“Highlighting this point is the reality that Edinburgh’s development pipeline is now almost entirely pre-let.

“Low yields in Edinburgh reflect the potential for growth and lack of risk however despite the strong level of investor demand for the Scottish capital, a lack of assets being marketed for sale in 2018 as a result of preceding record levels of activity has hampered overall transaction volumes.”

In 2018, Glasgow saw nearly twice the office transactions than Edinburgh did, and Aberdeen also saw a rise in activity with close to £170 million changing hands.

Penny added this greater spread of investment activity across Scottish cities, rather than specifically in Edinburgh, was notable.

“By investing in Edinburgh, and Glasgow, you are investing in a landlords’ market as supply is so limited and with its World Heritage status there will be restricted opportunity to change this dynamic in Edinburgh.

“Meanwhile, in Aberdeen a gradual improving economy and uptick in office activity being led by the oil and gas sector is piquing the interest of those investors looking for value.”

Savills says prime office yields in Edinburgh are at 4.5%, Glasgow 5.25% and 6.25% in Aberdeen.

Source: The National

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Scottish commercial property sector outperforming UK average

RETURNS on Scottish commercial real estate are continuing to push ahead of the UK average, according to a new report.

Data released by leading property consultant CBRE reveals that Scottish commercial real estate achieved a total return of 1.7% in the third quarter of 2018. This is a rebound from the 1.4% recorded in the second quarter, and a return to the same rate of return in Q1.

While there remains a 120 basis point difference between the annual total returns, with Scotland at 7.0% compared to the UK’s 8.2%, three sectors in Scotland – offices, retail and alternatives – are now ahead of the UK as a whole. This is most noticeable in high street retail with annual total returns of 6.4% in Scotland, versus 4.0% in the rest of the UK.

The one sector bucking the trend is industrials, where superior rental performance in London and south-east England continues to fuel exceptionally strong returns. This has helped push the UK industrial total return to 19.3% for the 12 months to the end of September, compared to 8.4% for Scottish industrials.

The main surprise this quarter in Scotland was a marked improvement for the retail sector. Total returns increased to 1%, a rise of 0.7% from Q2. However, the sector still has the lowest overall return in Q3, behind offices (2.2%), alternative property (2.4%) and industrials (1.9%).

For the third quarter in succession, the annual Scottish all property total return was virtually unchanged at 7%.

Individual sectors have shown more change, in particular offices and industrials. Office annual returns were the only ones to improve over the quarter, rising to 8.6% for the year to the end of September.

In contrast, industrial returns fell slightly to 8.4%, with the alternative property remaining the only sector with double-digit returns over the year (12.6%), well ahead of the weakest performer retail, at 4.0%.

Martyn Brown, a director in CBRE’s investment team, was encouraged by the results. He commented: “Unsurprisingly, the office sector was the best performing asset class in Scotland during Q3, driven by the strong capital value growth achieved in several noticeable investment sales.

“International buyers continue to be active in Scotland, attracted by the softer yields and higher returns on offer when compared to similar investment deals south of

the border.”

There is also now a marked difference between the performances of offices across Scotland’s three largest cities. Glasgow offices, at 7.6%, are positioned close to the all property total return, while Aberdeen offices saw a 4.1% return, continuing the recent period of improving quarter-on-quarter returns.

For the retail sector, returns in Aberdeen have technically slipped back into negative territory with an annual return on -0.3%. For Glasgow and Edinburgh, returns are higher, with Glasgow seeing the best performance of 8.2%, just ahead of its office returns.

A total of £505 million of stock was transacted in Scotland during the third quarter of the year, down from £578m achieved in Q2. This now sits at a similar level to the volumes achieved at the same time in 2017.

Overall, there was £1.77 billion spent across Scotland during the first nine months of 2018, a 27% rise from the same period in 2017. With over £670m, the office sector has seen more money directed towards it than any other commercial sector. Meanwhile, more than £300m has been spent on retail warehouses.

Source: The National

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£70m Merchant Square development ‘will transform ‘city centre’

WORK has commenced on a major development of a nine-storey grade A office building which it is claimed will transform the centre of Belfast’s business district.

The £70 million Merchant Square development on Wellington Place, due to complete by the autumn of next year, will create 227,000 sq ft of retail and office space and house up to 3,000 employees.

Funding for the Merchant Square project has been secured from the Northern Ireland Investment Fund and Fairfield Finance, with owner Oakland Group being advised by local firm Radius Corporate Finance.

Guy Hollis from Oakland insists development will have a “transformative impact” on Belfast city centre and will herald the beginning of a new era of commercial infrastructure in the city.

He said: “Our project will have a multiplier effect around Wellington Place, Queen Street and College Square, and we are confident the Merchant Square project will make a major contribution to the redevelopment of Belfast going forward.”

Among the unique features of Merchant Square (which replaces the existing Oyster House) is the sustainable nature of the development, with an emphasis on the provision of ‘green’ working space.

When completed the ground floor of the building will house retail units alongside space for 250 bicycles, complete with a bike repair shop and shower and laundry facilities.

Each of the nine floors will provide up to 24,000 sq ft of workspace and the entire building will incorporate smart building technology through wireless networks.

Mr Hollis said the development had been designed to showcase Belfast as a capital commercial city across the islands.

“We believe in the future of Belfast as a commercial hub and we have carefully designed every element of Merchant Square to ensure that we are providing the most up to date, attractive and competitive commercial space for which we know there is a demand.

“With our proximity to the new transport hub which is due to open in 2022, to the major motorways, the harbour and two airports we anticipate a high demand for this space and in fact we have already some enquiries before we start the building work. We are excited at the potential of Merchant Square and the contribution it will have on the ongoing regeneration of Belfast and Northern Ireland.”

Fairfield Real Estate Finance managing director Chris Wilson said: “The deal reaffirms our focus on helping experienced property teams to execute their business plans. We see Belfast as a very strong office market. Merchant Square is a great addition to our growing development finance portfolio.”

Lisa McAteer, director of CBRE, which is overseeing the letting of the building, added: “Merchant Square will deliver much needed grade A space to the Belfast market.

“Most of the existing space in Belfast is fragmented and cannot accommodate companies wishing to secure large floor plates for sizeable teams or to provide for future expansion. Merchant Square’s 24,000 sq ft floor plates make it ideal for companies with large requirements.”

Source: Irish News

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Demand for new office buildings falls as flexible working reduces need for office space

The number of new office buildings built has fallen 56% since the financial crisis in 2008, as changes like flexible working reduce the need for office space, says Lendy, one of Europe’s leading peer to peer secured property lending platforms.

Only 2,300 applications to build new office buildings were approved last year*, down from 5,200 in 2007/8.

Lendy adds that applications to build new offices have also fallen since the financial crisis – down 58% to 2,500 last year from 6,000 in 2007/08.

Lendy says that the fall in the number of office buildings being built is in part a symptom of changing work patterns in the UK.

Flexible working, for example, has lessened the requirement for new office buildings as a stronger emphasis is placed on working from home. Recent innovations, such as shared workspaces and cloud-based co-working platforms, has reduced the need for employees to have their own dedicated workspace.

Lendy adds that the drop in new office buildings could also show that the former trend towards large business parks dominated by office buildings, is fading.

Low levels of bank lending to property developers has also hampered the construction of new office buildings. Bank of England figures show that in December 2013, over £34 billion in lending was outstanding from banks to property developers, but this plunged to just £14.8 billion in December 2017.

As a result of the lack of bank lending to property developers, more and more are turning to alternative forms of finance, such as peer-to-peer, to get more projects started.

Liam Brooke, co-founder of Lendy, says: “Modern ways of working mean that offices are no longer as essential as they may have been in the past.

“Formerly, rising employment figures may have signalled a requirement for more offices. However, there is now less need for offices as employees can, in many cases, work just as effectively from home or shared workspaces.

“Demand for new offices is still out there, but banks simply aren’t lending enough to property developers to allow them to get their projects off the ground. This is why we are seeing more and more developers choose alternative finance options to fund their projects.”

Source: London Loves Business

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London office property market robust with strongest nine months on record

Investment in the central London office property market has surged this year, rents remain stable and the extreme risk to Brexit related jobs is overstated, according to a new analysis.

Overall, up to the end of September investment into London offices reached £12.5 billion, the strongest first nine months on record, and up 44% on the same point in 2016, the report from global property consultants JLL shows.

By the end of the year central London office investment volumes are predicted to hit £18 billion which will make it one of the highest ever years and prime yields and capital values have remained stable with London yields the highest of all global gateway cities.

The report points out that while there is continuing uncertainty about the flow of financial services jobs out of London, the extreme downside risk to Brexit related jobs is overstated.

It explains that previously office rents rising at too fast a rate have set up the conditions for a market correction, this hasn’t been happening. Rents have been stable the last two years and once longer rent free periods has been factored in, rents in real terms have already undergone a mild correction.

It also points out that there isn’t the aggressive oversupply of office space witnessed before previous corrections. Vacancy remains low and the likely delivery of office space due onto the market from 2018 to 2020 is modest.

Indeed, there is only 12.1 million square feet in the development pipeline for 2018 to 2020, of which 44% is already pre-let, compared to 35 million square feet back in 1990 to 1992.

And it says that wider office take up remains positive with 11.3 million square feet being taken up in the last 12 months beating the 10 year average of 9.9 million square feet while vacancy remains at 5% below the 10 year average

‘Amidst all the Brexit noise, negative political sentiment and pessimistic forecasts, there is some uncertainty but central London office property market fundamentals remain sound in terms of supply,’ said Neil Prime, head of central London markets at JLL.

‘We are seeing new sources of occupier demand from life sciences and sustained activity from the TMT sector which will offset financial sector weakness. London remains attractive to global capital and the flood of money from Hong Kong has not slowed. Nearly £1 of every £2 invested in London offices is from Hong Kong and this is unlikely to change in the short term. The weak pound will maintain the currency arbitrage play,’ he added.

‘In the current environment, the market looks stable and whilst unlikely to deliver widespread growth, an increase in office rents is forecast to return from 2019. Office occupiers will seek flexibility, employees will seek the best places and location and asset choice selection will be key to investor performance,’ he concluded.

Source: Property Wire