News - 09/08/2018

Industrial deals to the fore as North east Investment market flourishes

The North East commercial property investment market recorded its second-highest volume in five years in the second quarter of 2018, thanks to a buoyant industrial market.

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Investment volume up 134% year-on-year

Analysis of our latest UK Investment Transactions (UKIT) report found £243m of commercial property assets changed hands across the North East in Q2, up 34% on the first quarter and 179% year-on-year.  This compares to an uplift of 7% over the same 12-month period across the Northern Powerhouse regions of Yorkshire, the North East and North West combined.

Overall, the North East region saw 14 commercial property deals during the quarter, down on the first three months of 2018 but up 15% year-on-year.

Industrial sector dominates activity

The Industrial sector dominated activity across the North East, with £131m of assets transacted, accounting for a 54% share of volume. However, this was underpinned by Tritax Big Box REIT’s forward funding of a new 1.5m sq ft logistics fulfilment centre at Link 66 in Darlington, for £121m.

At £59m, the Retail sector accounted for 24% of total investment volume. Sports Direct’s £32m purchase of a 90,000 sq ft building at 36-40 Northumberland Street in Newcastle, currently home to H&M and WHSmith, was the largest deal to complete.

Activity from the Alternatives sector was largely in line with Q1, with £40m of assets transacted accounting for 16% of the total investment volume. Major deals included IPIM Singapore’s £20m purchase of Mansion Tyne, a 379-bed student accommodation building on Howard Street, Newcastle.

The Office sector saw activity fall back significantly during Q2, accounting for 6% of total investment volume.

LSH’s £10m purchase of Rotterdam House in Newcastle on behalf of UKRO, and £3m purchase of Eagle Star House in Gosforth on behalf of Lok Developments were among the largest reported transactions.

Property companies most prolific buyers

At £166m, the report found that UK quoted property companies were the most prolific buyers, accounting for 63% of total activity.

Across the Northern Powerhouse region, £1.27bn of assets changed hands in the second quarter, down 18% from the previous quarter but up 7% year-on-year.  The total number of deals was 142, down 5% from the first quarter but up 31% year-on-year. The average deal size was £13.55m, up 23% on both the previous quarter and 12 months.

The office sector accounted for the largest proportion of activity at 31%, followed by Industrial (27%), Alternatives (23%) and Retail (19%).

Outside the North East, major deals included Brockton Capital’s £63m purchase of The Pinnacle, a 145,000 sq ft office building in Leeds city centre, and APAM’s £26.6m purchase of Acero, an 80,000 sq ft multi-let office building at Sheffield Digital Campus.

Luke Symonds, Capital Markets – North East, said: “At £262m, the North East recorded its highest volume since Q3 2013 while, just down the road, total investment volume of £523m in Yorkshire and the Humber was the highest since Q3 2015.

“Across the UK, Q2 was another very active quarter for industrial portfolios, with £723m transacting across 17 deals up 40% on the five-year quarterly average.

“Looking ahead, although concerns persist around the uncertainty of Brexit and high profile CVAs in the retail sector, there is plenty of cause for optimism. Our outlook suggests that regional offices may become the sector of choice for savvy and flexible investors seeking good returns.”

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