Brown&Co purchased two modern office investments in Leeds and Bradford in July 2015 where both buildings were let to the national Insurance Brokers, Jelf Group Plc. Both leases were for ten year terms from December 2014 with a rent review and tenant break option at the end of the sixth year of the term. The Leeds property, Beech House, was constructed during the 1990’s and had a net internal area of approximately 5,247 sq ft (487 sq m) and was let on an effective full repairing and insuring basis subject to a schedule of condition at £75,000 per annum. 12 Trevor Foster Way in Bradford was built in circa in 2008 to a high specification, has a net internal area of approximately 8,404 sq ft (781 sq m) and is let on the same basis at a rent of £110,000 per annum exclusive of VAT. Both buildings were acquired at purchase prices of £700,000 and £930,000 respectively reflecting net initial yields of 10.13% and 11.18% after addition of usual acquisition costs.
In July 2015 Brown&Co also acquired Unit 8 at Pioneer Park in Castleford next to the Snowdome on behalf of clients for the sum of £830,000. This property comprised a modern detached 13,000 sq ft (1208 sq m) warehouse premises located just off Junction 31 of the M62 let in its entirety to Dorema UK Ltd, part of Europe’s largest caravan awning manufacturing business. The property was let on a five year full repairing and insuring lease from January 2015 at a rent of just under £66,000 per annum exclusive of VAT with the rent to be reviewed annually having reference to the Consumer Price Index and on an upward-only basis. The purchase price reflected a net initial yield after the addition of usual acquisition costs at 7.52% reflecting the quality of the building and its location.
Trade Counter Investment
In July 2015 Brown&Co also acquired Units 1, 2 & 3 at Teesway Park in Stockton on Tees for the sum of £1,025,000 with the properties comprising a terrace of three modern trade counter units built circa 2008 to a high specification being located just off the A19. The buildings were let to three tenants, two of which offered excellent covenant strength in the guise of MCD Group Ltd and Eriks Industrial Services Ltd. The three units extended in terms of gross internal area to approximately 16,000 sq ft (1,490 sq m) and produced a combined rental income of £86,300 per annum exclusive of VAT. The units were let by way of a variety of lease terms with expiry dates of 2022 and 2023 with two of the tenants having break options in 2017 & 2018 respectively. The purchase at the level agreed reflected a net initial yield of 7.96% after the addition of usual acquisition costs.
It is worth noting from the aforementioned transactions the increasing strength of the industrial, warehouse & trade counter sectors of the market, particularly where modern and well-located premises are involved let to established tenants. Typically, such investments achieve yields of between 7% and 8%.
It is evident that the office sector remains weaker than the industrial and warehousing sector, due largely to over-supply of office accommodation to the market in general, which has weakened landlord positions when negotiating terms to retain existing tenants and attract new ones to vacant buildings. Until supply and demand reaches equilibrium, we believe that the office sector will remain weaker than the industrial and warehousing sector where historically, the reverse has always been true. As you can see from the yields at which we purchased the Leeds and Bradford office investments above, these are at least 2% weaker than industrial and warehouse counterparts despite both buildings being let to a Plc with considerable net worth. Both offices comprise modern, well-located buildings situated in close proximity to both Leeds and the established motorway network. These investments were purchased in an off-market transaction where one of the Directors of the company that owned the buildings approached Brown&Co directly to negotiate a deal.
If you require any further information then please do not hesitate to contact us, and hopefully this story will help cement our position with our clients as an established Acquisition Agent for investment opportunities. Brown&Co Grantham office now manages well over 150 investment properties of a commercial and residential nature for a variety of clients and collects an annual rent roll in excess of £5 Million on behalf of clients and our Norwich office provides the largest management function within the firm.