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Newcastle

North East Investment market – Dickon Wood reviews 2012

Dickon Wood, Director of Investment at Jones Lang LaSalle’s Newcastle office reviews the North East Investment market in 2012


NEWCASTLE, 29 November 2012 – The 2012 commercial property investment market has been a case of “copy and paste” of 2011.

 

 

Volumes of transactions in 2012 have been at £230million which is on a par with 2011 (£245million) and has the same characteristics in that it is dominated by 5 big deals, without which we would be looking at a total volume of commercial deals in the North East of only £70million.  This is a far cry from the heady days of 2006 where volumes reached £700million. 

 

Of those big deals that took place, The Gate in Newcastle was acquired by the Crown Estate for £60million and Jones Lang LaSalle successfully sold a student residential scheme at Downing Plaza for £56.4million.  Two supermarket fundings in Sedgefield and Skelton have accounted for a further £30million but outside these areas, market conditions remain very tough.
 
Of the remaining £70million of deals undertaken we are seeing a continued influx of investors from outside our region, which is a common thread throughout the rest of the UK.  Of all commercial transactions taking place across the whole of the UK, nearly 80% have been undertaken by overseas investors.
 

 

The property market is truly global and the UK is now attracting funds from Israel, the Middle East, Far East, Europe and North America. 

 

To bring this to a local perspective Jones Lang LaSalle in Newcastle have acquired 3 prime industrial estates in the North East for a European investor in 2012.  His appetite continues but we are struggling to find suitable stock in our region to satisfy this. 
 

 

The prime end of the market is holding up ok but outside this pricing in the region continues to soften as a result of very limited availability of bank debt, falling rents, an oversupply of out of town offices and limited tenant demand. 

 

The above criteria are contributing to the continuation of a “perfect storm” in the market. 
 
However as always there are signs of hope.  Unfortunately one man’s pain can often become another man’s opportunity and we are now witnessing more receivership sales which are addressing pricing and leading to some good opportunities.  Merchant House in the Groat Market in central Newcastle sold in October 2012 for a price of £2,400,000 which reflects an initial yield of 16.25%.  It was not that long ago that this property would have sold for double this figure.
 

 

Milburn House on Dean Street is another in receivership and at a yield of 15% is also generating good interest at yields that have not been seen in Newcastle city centre for nearly 20 years. 

 

 
So to conclude on 2012, it has been a difficult year with market conditions and investor aspirations being difficult to align.  I feel however that we are now at the bottom of the cycle and even though we may bump along like this for a while to come, there are good buying opportunities for investors. 
 
The buzz words for 2013 will be prime stock, rebased rents, sustainable income and distressed sales.  Those investors that have access to funds to take advantage of this criteria could well look back on 2012/13 as the best buying opportunities of this cycle. ​