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Who owns Central Birmingham? The GVA Birmingham Ownership Survey

Spring 2015

Introduction Welcome to GVA’s fourth Birmingham real estate ownership survey, which analyses the ownership of all major office and retail properties in Birmingham’s central business district. The survey covers nearly 15 million sq ft of office and retail property, of which 71% is office and 29% is retail. Our detailed information allows us to provide a unique insight into the profile of the city’s commercial property ownership. The city centre once again saw a significant amount of investment activity during 2014 with approximately £670 million* transacted in the office and retail sectors, accounting for circa 3 million sq ft (approximately 20% of total floor space within the study area).

The market was dominated by the UK institutions accounting for approximately 50% of the transaction volume, comprising significant deals including M&G’s acquisition of Two Snow Hill (reportedly £160 million), and Legal & General’s acquisitions of Temple & Priory House (£87.5 million) and the House of Fraser department store (£71.5 million). We also saw a strong demand from UK property companies, US investors and German institutions, as well as two significant corporate owner occupier transactions including Direct Line’s acquisition of Direct Line House (£24.5 million) and Primark’s acquisition of the Pavilions Shopping Centre (reportedly £25 million).

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* Excludes the amount paid by Lone Star for Moorfield’s 40% share of Brindleyplace as terms remain confidential.

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Who owns Birmingham? Our survey shows that 71.4% of Birmingham’s city centre office and retail stock is in the sole ownership of UK organisations, a slight increase on the 70.3% recorded in last year’s survey. Although this is a relatively small change it disguises the strong level of activity seen in 2014, with a number of UK-owned properties bought by overseas purchasers, and UK buyers also purchasing several properties from overseas investors. North American ownership has seen the greatest shift, rising from 4.5% of the total in last year’s survey to 8.5% this year, assisted by the purchase of the Great Charles Street Estate by Dunedin, backed by US opportunity investor Angelo Gordon, as well as Lone Star’s purchase of Moorfield’s stake in Brindleyplace.

Ownership by nationality

Far East 0.9% Middle East 2.0% North America 8.5% Far East 0.9% Middle East 2.0% Rest of Europe 5.8% North America 8.5% Far EastIreland 0.9% 2.9% Middle East 2.0% Rest of Europe 5.8% Mixed UK / Overseas 8.4% North America 8.5% Ireland 2.9% UK 71.4% / Overseas 8.4% Rest of Mixed EuropeUK5.8%

Source: GVA

Ireland 2.9% UK 71.4%

A further 8.4% of the stock is jointly owned by UK and overseas investors (principally accounted for by the Bullring, which remains in joint UK/Canadian ownership). The proportion owned by Irish investors has fallen to 2.9%, down from 4.6% in last year’s survey, with a marginal increase in ownership by other European investors, up from 5.4% to 5.8%. There was no change to the ownership by Middle Eastern and Far Eastern buyers.

Mixed UK / Overseas 8.4%

UK 71.4% Overseas 28.6%

Ownership by type of owner

Local Birmingham 7.8% Overseas 28.6% Other UK 6.9% Local Birmingham 7.8%

We have also broken down the space according to the type of owner. This shows that UK institutional investors have the largest block of ownership in the city, with 30% of the stock. UK property companies own nearly 22% of the floorspace. Almost 8% of the total is owned by local Birmingham investors, whilst 5% is owned by the public sector, most notably Birmingham City Council. 28.6% is either wholly or partially owned by overseas investors. Looking at office ownership by grade, a significant proportion of the grade A stock, 46%, is in overseas ownership, although down from 59% in last year’s survey. The UK’s share has been boosted by transactions such as M&G’s purchase of Two Snow Hill from Hines, and Direct line’s purchase of Direct Line House. A much lower 11% of the total grade B stock is in overseas ownership, as is 13% of the grade C stock. The amount of grade C space in overseas ownership has increased markedly from just 2% in our last survey, largely due to the purchase of the Great Charles Street Estate by Dunedin / Angelo Gordon.

Government 5.0% Other UK 6.9% Overseas 28.6% Local Birmingham 7.8% Government 5.0% Other UK UK 6.9% property companies 21.7%

UK institutions Government 5.0% 30.0% UK property companies 21.7%

UK institutions 30.0%

Source: GVA 100%

UK property companies 21.7%

70% UK institutions 30.0%

80% 100% 70% 70%

Office60% ownership by quality 80% 100% 70% 80% 70%

50% 70% 40% 60% 30% 50% 20% 40%

10% 60% 30% 0% 20% 50% 40% 30%

Grade A

Grade B

Grade C Overseas / part overseas

10%

UK

0% Grade A

Grade B

Grade C

20%

Overseas / part overseas UK

10% 0% Grade A

Source: GVA

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Grade B

Grade C Overseas / part overseas UK

Who owns Birmingham? The GVA ownership survey | Spring 2015

Investment market trends The UK investment market performed strongly throughout 2014 with the total value of UK investment transactions amounting to more than £63 billion (Property Data, deals reported to mid-February). This is the highest total on record, just ahead of the previous strongest year of 2006 (when values were 25% higher than today), and comfortably above the 2013 total of £54.5 billion. Overseas buyers and UK institutions were both heavy net buyers in 2014, increasing their exposure to UK commercial property by a combined £15 billion. Overseas buyers accounted for 42% of the value of UK purchases in 2014, with UK institutions making up 29%. Buyers from the US were particularly active in 2014, buying commercial property worth more than £11 billion. During 2014 we saw a significant weight of money focus on the UK’s regional markets. This has been driven primarily by improved confidence in the occupational markets, and key investors such as UK institutions, REITs, property companies and US private equity being priced out of London and the South East. The high level of demand throughout 2014 resulted in a downward shift in yields. The all-property average equivalent yield moved in by 76 basis points on the IPD Monthly Index, but some sectors saw much sharper falls. Average UK industrial yields tumbled by 116 basis points and offices outside London and the South East fell by nearly 160 basis points. Birmingham, being the UKs second largest city, attracted strong demand throughout 2014 and this has remained the case during the start of 2015. The city is benefiting from vast capital investment in its public transport infrastructure over the last five years, including most notably the redevelopment of New Street Station (Grand Central), the metro extension, the Birmingham Sprint rapid transit system and the Birmingham Airport runway extension. It has also seen extensive regeneration over the last 20 years. As such, Birmingham is well placed to capitalise on this investment to compete for business and inward investment on an international stage. These factors contribute to making the city an attractive proposition for UK and overseas property investors.

Birmingham Offices The total transaction volume for 2014 was approximately £560 million, which is 275% higher than 2013 and over 15% above the previous peak in 2006. This is a reflection of the depth of investor demand we referred to in our 2014 report, and the growing confidence in the Birmingham market. UK institutions have been the most prominent investors in 2014, as demonstrated by M&G’s and Legal & General’s acquisitions of Two Snow Hill and Priory & Temple House, amounting to just under £247.5 million in just two deals.

UK property companies also completed a number of key transactions, most notably Ardstone’s purchase of Victoria Square House for £41.5 million, IM Properties’ acquisition of 55 Colmore Row for £33.5 million and Benson Elliot’s purchase of 11 Brindleyplace for £30 million. These transactions, together with Rockspring’s acquisition of the Nat West Tower for £15 million and Bruntwood’s purchase of Peat House for £10 million, both of which will be redeveloped, demonstrate the high level of confidence in the city centre office market. US interest also remained strong as demonstrated by Lone Star’s acquisition of Moorfield’s 40% stake in 560,000 sq ft at Brindleyplace, which formed part of a £1 billion portfolio. We also saw Dunedin, backed by US opportunity investor Angelo Gordon, in the purchase of the Great Charles Street Estate for £22.5 million. German institutional interest was maintained in 2014 with Cordea Savills’ mandated acquisition of 5 St Philips Place for £38 million. The lowest yield achieved during 2014 was 5.75% but sentiment would suggest that the prime yield is now circa 5.0 to 5.25% which would represent compression of circa 50bps. The previous market peak in 2006/07 reached 4.25% and at the bottom of the market in 2008/9 it was 7.0%. In light of the improving occupational markets and the prospect of rental growth we consider the current prime yield to represent excellent value. Birmingham is an attractive market for international investment and 2015/16 has the potential to offer exciting opportunities in terms of stock and through development funding. Taking into consideration the sales that are under offer at the time of reporting, and those buildings rumoured to be coming available, this year’s total transactional volume could easily exceed that of 2014.

Birmingham Retail Birmingham is one the UK’s top retail destinations and will be further enhanced during 2015 with the opening of the Mailbox in April, and Grand Central in September. These latest schemes demonstrate the city’s continuing ability to attract leading domestic brands, international retailers and high quality restaurant and leisure providers. The prime retail pitch is dominated by a small number of large schemes, and as such transactional activity tends to be relatively scarce. The largest investment transaction in 2014 was Legal & General’s purchase of the 500,000 sq ft House of Fraser Department store for £71.5 million. Other notable transactions were CBRE Global Investors’ £15.1 million acquisition of The Great Western Arcade and Primark’s purchase of the 250,000 sq ft Pavilions Shopping Centre, which it will convert to accommodate a 150,000 sq ft department store for its own occupation. Current investor sentiment would suggest the prime high street retail yield has remained stable at around 5%.

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During 2014 GVA’s Birmingham investment team advised on the following transactions

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Published by GVA 65 Gresham Street, London EC2V 7NQ ©2015 Copyright GVA GVA is a Bilfinger Real Estate company. GVA is the trading name of GVA Grimley Limited and is a principal shareholder of GVA Worldwide, an independent partnership of property advisers operating globally.

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This report has been prepared by GVA for general information purposes only. Whilst GVA endeavours to ensure that the information in this report is correct it does not warrant completeness or accuracy. You should not rely on it without seeking professional advice. GVA assumes no responsibility for errors or omissions in this publication or other documents which are referenced by or linked to this report. To the maximum extent permitted by law and without limitation GVA excludes all representations, warranties and conditions relating to this report and the use of this report. All intellectual property rights are reserved and prior written permission is required from GVA to reproduce material contained in this report. GVA is the trading name of GVA Grimley Limited © GVA 2015.

Ardstone Capital Victoria Square House, Birmingham • 153,559 sq ft office building adjacent to New Street Station • Acquired by Ardstone in February 2014 for £41.5m (NIY 6.65%)

Benson Elliot Capital Management LLP 11 Brindleyplace, Birmingham • 109,836 sq ft out of which 57,230 sq ft is void • Acquired for Benson Elliot in July 2014 for £30,020,000 (£288 psf capital value assuming costs at 5.8%)

Aviva Investors Great Charles Street Estate, Birmingham • 332,144 sq ft • Multi let add value opportunity • Disposal in December 2014 for £22,500,000 reflecting a NIY 10.37%

For further information please contact: Ian Stringer Regional Senior Director 0121 609 8308 [email protected] Jonathan Hillcox Senior Director, Investment 0121 609 8426 [email protected] Alastair Robertson-Dunn Director, Retail, Hotels and Leisure 0121 609 8106 [email protected] Charles Toogood Senior Director, Offices 0121 609 8448 [email protected] Daniel Francis Head of Research 020 7911 2363 [email protected]

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