Commercial property buyers are ‘polarised’ but deals still to be had

The commercial property deals market has started to wake up again in recent weeks, according to a commercial property director who expects Q3 and Q4 to again be the busiest in the marketplace during 2018.

Speaking at a property market update, Ben Hall, senior director at GVA in Leeds, reflected on recent market conditions and deals, including the £26m City Point deal which was acquired by West Midlands Pension Fund in recent weeks.

Hall said it was tricky to value and price assets currently and that there was a polarised market between defensive buyers and value-added buyers. This has caused some delay in deals particularly in the value-added space, he said.

This includes the sale of Lateral office building, on Sweet Street on the South Bank of Leeds. Hall said it had been leased to the government for a further four years but it needed underwriting and also was in need of refurbishment.

The building came to market 12-18 months ago at £28m and is currently under offer for a reported £24m; which he said reflected the need to get price right from the start. Cushman and Wakefield, agents for the property, said they were unable to comment on the status of the sale at this time.

Hall said other deals such as 3 St Paul’s in Sheffield with a blended yield of 6% and a £3m York city centre acquisition proved activity had picked up in recent weeks.

He said: “There are not enough investment products out there. There is stacks and stacks of equity who want to buy commercial property but a lack of property  investment choice. In terms of buyers, it is a very polarised market in terms of who is looking to invest in commercial property.

“Depending on what category your buyer is in can make valuing and pricing tricky.

“We have defensive buyers – pension funds, private investors/high net worth, family trusts and, the most recent entrant to the market, Local Authorities; who have been active in the last one or two years.”

Hall said that value-added deals were not straight forward unless the pricing was “spot on.”

He added that investors were not always looking to break the bank but were expecting a yield of around 6%. Sectors of particular interest to buyers include Grade A office space, industrial, distribution; as well as “alternative” options, including hotels.

Hall said: “In the defensive sector, selling is an enjoyable experience. There is a lot more interest and pricing is driven down due to the weight of money.

“The value-added, territory market, is a lot more difficult.

“We are almost moving away from traditional valuation. There is regard to comparable yields and capital valuations. But the pricing has to balance risk and that can be the difficult point.”

Hall said of the Yorkshire marketplace: “The theme of 2017 was a lack of product. There was not a lot of activity in Q1 and Q1 but it happened during Q3 and Q4.

“Since Easter, I have felt more positivity with investors wanting to sell. I think we are going to see more activity following suit with last year.”