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Knight Frank

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Vale Removals has moved to larger new warehouse and office premises in Penarth Road, Cardiff.

The company, which was started 10 years ago by Gareth Hobbs and partner Emma Evans, has taken a five year lease on the 5,193 sq ft Unit 4 Llandough Trading Estate, Cardiff, at a rental rising to £23,369 per annum.

Knight Frank and Bilfinger GVA acted on behalf of Northwood in the letting.

Gareth Hobbs said: “We have gradually expanded to offer removals, packaging and storage services and the new premises enable us to bring all aspects of our work under one roof.”

“We have moved from just across the road and, with around 7,000 sq ft warehouse storage including the mezzanine, this is much bigger and better and enables us to continue to grow.

“This is a big step for the future of the business and we are hoping to take on another unit on the estate within the next 12 or 18 months.”

Llandough Trading Estate comprises 22 industrial units on a site of 16 acres in total. Neil Francis, who heads the Knight Frank industrial agency team in Cardiff said: “Investment by the landlord has helped secure this letting, and we also now have the 6,600 sq ft Unit 19 under offer, too.”

Tom Merrifield Head of Agency at Bilfinger GVA’s Cardiff office said “The letting to Vale Removals signals a stronger market and proves that well located estates can take advantage of the improved conditions where landlords are proactive in their approach to new tenants and lettings”.

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The first Benchmarx Kitchens and Joinery branch in Cardiff is opening at Regent Trade Park on Ocean Way as agents Knight Frank & Bilfinger GVA negotiate a double deal at the estate with a further letting to MODFIX.

Established in 2006, Benchmarx is a trade-only kitchen specialist with 110 branches across the UK and is a member company of Travis Perkins plc. Modfix specialises in the supply of fixings and power tools to the construction industry and relocate across the City.

Property consultancies Knight Frank and Bilfinger GVA advised landlord CBRE Global Investors on the transaction, to lease the 4,950 sq ft Unit 6 to the Travis Perkins Group on a 10 year lease.  Modfix has acquired Unit 11 on the estate on a similar basis.

Regent Trade Park is a high profile prominent development, providing 12 quality units. Other occupiers include Euro Car Parts Ltd, Greggs, Tool Station and The Word.

Neil Francis, who heads the Knight Frank Industrial agency team in Cardiff, said: “Unit 6 has been fully refurbished by the landlord and its quality glazed frontage, roadside prominence and excellent location were all factors in the deal.

“The investment programme by the landlord is enabling headline rents to be achieved at Regent Trade Park – among the highest industrial rents in Cardiff.”

Tom Merrifield, Head of Agency at Bilfinger GVA’s Cardiff office said: “These two lettings signal a return of the trade counter market following a number of years of restricted growth.  Improvements in the residential construction market have led to good quality occupiers seeking prominent well located space and Regent Trade Park continues to fulfill the requirements of this sector of the commercial market place. There remains one vacant unit at the Park and with discussions ongoing we anticipate further occupation in the very near future.”

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Private Investors accounted for a quarter of all commercial property deals last year, contributing an estimated $153bn of commercial property deals transacted in 2014. Many of these transactions were funded by Ultra High Net Worth Individuals (UHNWIs) – those with $30m in assets or more – through family-owned funds, companies or private offices.

The figure represents a 7% rise from $143bn invested by UHNWIs the previous year, contributing to an estimated total of $646bn worth of commercial property deals conducted throughout 2014.

The results of the Knight Frank Wealth Report’s Capital Markets Survey show UHNWIs are now looking beyond prime or trophy offices and retail space as a safe haven for their funds; they are prepared to look up the risk curve to non-core locations.

An increased risk appetite may mean moving outside a capital city’s CBD area, where yields have become increasingly compressed, or heading into secondary cities where better value and higher returns are available.

In addition to moving away from more traditional markets, UHNWIs are increasingly allocating funds to property investments outside their own country.  More peripheral markets such as Ireland and Spain are benefiting from this trend.

Demand for alternative property assets is also growing, and is leading to more private investment into business-critical opportunities like health care and student accommodation.

James Roberts, Chief Economist at Knight Frank, said: “UHNWIs are adopting increasingly sophisticated investment strategies, and sometimes this approach involves the kind of active management previously restricted to institutions and funds.

“Examples include refurbishment and development projects – where others may see down-at-heel neighbourhoods, he sees opportunities for regeneration and social change.”

According Knight Frank’s latest Attitudes Survey results, the UHNWI hunger for property as an investment remains undimmed. Falling oil prices should free up more capital to be spent on consumer goods, which should in turn present more property opportunities to feed the increasingly hungry private investor.

James Roberts, Knight Frank’s Chief Economist, said: “If I had to pick a single word that could apply right across the global economy at this time it would have to be ‘uncertainty’. This is why investors are looking at real estate.

“For the investor in the Middle East it is uncertainty over the situation in Iraq and Syria. To the European or Japanese investor it is the move towards QE and whether this will end stagnation. Conversely, the American or Briton faces uncertainty on how best to invest to capitalise on an unfolding recovery.

“A real estate investor knows that if the lean years are to continue, one buys the safe prime assets, like offices in Manhattan or shops on the Champs-Élysées. If the economy is about to improve, the riskier but higher-yielding properties are where opportunities lie.”

Investors are already adopting a higher risk profile, as evidenced by the $619bn of global commercial real estate sales which represented an increase of 7.5% from 2013, with value-add assets increasingly popular.  Value-add is any building where the purchaser can grow the investment return via construction, changing to another use like residential, or signing up higher paying tenants.

James Roberts said: “I see global sales rising by another 6% in 2015, with value-add rising further up the agenda. Private investors are following the trend towards risk, which was not typical of previous property market cycles.

“Traditionally, the private investor has targeted prime assets, but last year a quarter of global commercial sales were to private buyers, despite the move towards risk evident in numerous markets.

“China is adapting to a new pace of growth, but the country’s projected GDP increase this year from the IMF is about the equivalent of adding 18 new corporations the size of General Motors. China is far from a busted flush and actually somewhere to look for long-term opportunities.

“That office rents have edged back rather than slumped in Shanghai and Beijing during challenging market conditions bodes well for the long term, so I see resilience in key centres. India’s property market has experienced a marked slowdown.

“Opportunities are opening up as the global economy moves into a new cycle. Development in particular is rising up the agenda in the real estate world, and UHNWIs will be part of the new wave of building.”

The volume of specialist property investment will exceed £10 billion in 2015 and will account for 20% of the total commercial market by 2020, Knight Frank forecast at its annual Specialist breakfast event.

The core specialist property sectors – automotive, healthcare, hotels, and student property  – account for an ever growing share of the commercial market, a trend which will continue for the foreseeable future.  Key driving factors include structural changes such as the UK’s ageing population and increase in student numbers, and car sales growth, combined with increased occupier demand for high quality property.

The squeezing of yields within the “traditional” sectors such as retail and offices has also prompted investors to look at assets which offer better returns, not to mention opportunities for diversification.  This year will see a sharp increase in deal volumes for specialist property, along with rental growth and further yield compression.

A Knight Frank survey of investors suggested that there is a strong desire to boost allocations to non-core commercial assets including the “sleeping giant” that is the Private Rented Sector (PRS) which is currently a cottage industry worth more than £1.5 trillion in addition to specialist property around the UK.  Of particular note is the increasing interest in rapidly growing niche segments such the automotive sector.

Key highlights:

–     The automotive sector will see yields hardening further this year, alongside rental growth. Institutional funds will continue their interest and 2015 will see the largest ever volume of automotive investment transactions in the UK.

–     Care homes are set to be the best performing asset in the healthcare sector, with a new wave of domestic and international operators set to enter the market. Mental health and learning disability properties are generally undervalued and will offer potential gains to investors.

–     In London, space efficient, funky hotel formats will outperform the wider budget sector.  Emerging hotel markets, including East London and Nine Elms, will continue to thrive, while a recovery in trading performance will lead to an increase in demand for secondary locations across the UK.

–     Within student property, the direct let market is expected to be the best performing segment. Deal volumes are set to rise, with at least £3 billion worth of transactions in established portfolios expected to take place.

Darren Yates, Head of Global Capital Markets Research, Knight Frank, commented, “With improving occupier demand, easier access to finance and a greater willingness to move up the risk curve, investors’ appetite for specialist property continues to increase.   Indeed, for many investors, specialist property now forms an integral part of a core portfolio. “

Shaun Roy, Head of Specialist Property Investment, Knight Frank, commented, “The continued rise in investor interest in specialist property reflects the appreciation of these business critical assets which, when bought on sensible rent covers and on sound operational business assets, provide their owners with confidence in the durability of income. Moving forward to 2020 we expect to see this sector experience strong growth within the total market, and to become an even more significant part of investor’s portfolios. ”

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Two new occupiers have been attracted to the Liberty Industrial Estate in Ashton Gate, South Bristol.

The Window Outlet Ltd has taken a five year lease on the 8,187 sq ft Unit 11 at an annual rental of £32,338.65, while the 10,959 sq ft Units 4 & 5 have been leased by Jing Xing Trading Co. Ltd for 12 years at a rental rising to £43,848.

Landlord CBRE Global Investors was advised by joint agents Knight Frank and Russell Property Consultants.

Russell Crofts, who heads the Industrial team at Knight Frank in Bristol, said: “The industrial units at Liberty Industrial Estate have recently been refurbished and modernised, with vacant units receiving new flooring, new lighting, toilet and kitchen refurbishments as well as complete internal and external redecoration.

“The result is revitalised accommodation which is proving very popular with a range of occupiers.”

Rob Russell of Russell Property Consultants added: “With good access to the Portway and on to the M5 Liberty Industrial Estate ticks all the boxes for trade counter, distribution and light manufacturing companies.”

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Following the Grade A refurbishment of two floors in No 1 Whitehall Riverside in Leeds, landlord NFU Mutual has announced the letting of 8,300 sq ft of space to Handelsbanken for a new regional head office serving Yorkshire and the North East.  Handelsbanken has agreed a new 10 year lease at a rental of £26.00 per sq ft.

David Hidderley from landlord NFU Mutual said: “Securing a 10 year lease, at the new headline of £26.00 per sq ft, fully endorses the business strategy for this Grade A building.  We are delighted to welcome Handelsbanken to the building and hope to announce further lettings very soon.”

Simon Lodge of Handelsbanken added: “We are really pleased to have secured space in No 1 Whitehall Riverside, it is a great building for all our business needs and that is why we have committed to a long term lease.”

In addition to the  £1million investment in the 4th and 5th floors, NFU Mutual has, at its own cost, invested  a further £150,000 in the refurbishment of the entrance foyer and reception and in so doing have further enhanced the building’s reputation as one of the finest office buildings in Leeds.

Richard Thornton of letting agents JLL added: “No 1 Whitehall Riverside is already home to a number of corporates and Handelsbanken is another high calibre occupier to be added to an already impressive tenant line up and who benefit from some fantastic amenities on the ground floor with the very recently upgraded and remodelled Riverside Café.”

Richard Fraser of Carter Towler who advised Handelsbanken concluded: “There were a number of Grade A buildings for Handelsbanken to consider but No 1 Whitehall Riverside ticked all the boxes from location, superb floor plate configuration and image of building.”

JLL and Knight Frank are letting agents for No 1 Whitehall Riverside which comprises eight floors of office accommodation.

Last week saw Sweden’s Riksbank become the latest central bank to announce a negative interest rate, joining the Eurozone, Denmark and Switzerland. At the time of writing ten year bond yields are now at or below 0.5% for Austria, Denmark, Germany, Japan, The Netherlands, Sweden, and Switzerland. Suddenly the yields on UK commercial property look huge, particularly if you are an overseas investor, beckoning the question, how will a normal spread be restored?

The idea that bond yields and interest rates could sharply increase is unlikely for the foreseeable future, so the other alternative – property yields fall – feels a more probable option.

However, there is a third, and more bearish scenario, which is the gap stays the same or perhaps even widens as bond yields go lower, as arguably the spread is there due to risk levels. Central banks are printing money because they are concerned about the outlook, and the spread reflects the greater risks involved in holding an asset like property, that does best in a rising economy, during tentative times.

Also, deflation threatens to create its own bizarre economics in Europe. If inflation is minus 0.33% in Switzerland and a 10 year bond yields 0.05% there is still a spread of 38 bps for anyone who is feeling cautious.

There is of course no correct size for the spread, which is dictated by how bearish or bullish the market has become. At a time when there is talk that Greece may yet crash out the Euro it is unsurprising that some are prepared to accept negligible yields on safe haven bonds, but that is unlikely to continue indefinitely. If investors can find a recovery to ride they will do so, particularly when it is in a G7 nation. Also, one has to wonder at the pressure that will build on those in bonds to take profits and redeploy it elsewhere as we get further into the latest round of QE.

To this backdrop the UK offers an established economic recovery, and a property market where discussion on the impact of bad debts has almost disappeared. Prices have been rising for 21 months on the IPD measure, and rental growth is re-emerging outside of central London.

Money is being printed in the Eurozone (and Denmark and Sweden), but it can travel where it likes in the EU to be invested. Similarly rates on the continent can be set at levels intended to strong arm bankers into lending, but they can lend abroad rather than at home. For some European investors and lenders, UK property could look a safer bet than domestic markets, as there are probably further road bumps ahead for the Eurozone.

Yes, the exchange rate is not in the favour of a Euro buyer looking at the UK. However, while the pound has been steadily strengthening against a range of currencies for some time foreign investment volumes in London are still high, probably thanks to currency hedging. Plus there is the prospect of receiving rent payments in an appreciating currency, and a lesson of recent years has been portfolio diversification has advantages.

So we believe a QE boost for UK property could be around the corner.

This beckons the question where will this money go in the UK?

While there are well publicised examples of foreign money now heading into the regions, overseas investment is typically less comfortable deploying beyond London and we should expect the capital to be the main target. Foreign money has accounted for the majority of investment in the central London market for seven of the last ten years, and 2015 looks set to extend the trend towards international dominance. While regional yields may be higher than those in London, the finance environment for those coming in from abroad makes the numbers work in the capital, and there is little reason to expect this to change suddenly.

Thus we could be looking at another year where central London is a difficult market for the typical British fund to buy into. For UK investors the regions should now be at the top of the agenda.

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Following its recent acquisition of the 91,000 sq ft Rainton Bridge Business Park in Houghton Le Spring in the North East, Harbert and XLB Property have appointed joint office agents CBRE and Knight Frank. The instruction continues the firms’ long-standing prior appointment on the project and well documented success in achieving and retaining high occupancy levels.

It was recently announced that Harbert Management Corporation, with asset manager XLB, has completed its acquisition of Project Emperor, a portfolio of UK business park assets, for £137m, from Arlington Business Parks Partnership, which is jointly managed by Goodman and Legal & General Property. Rainton Business Park is part of the portfolio.

Rainton Bridge is a major business park situated 5 miles to the North East of Durham City Centre and 7 miles to the South West of Sunderland City Centre in close proximity to Houghton-le-Spring Town Centre. Together with the owner occupied RWE npower building, it comprises 820,000 sq ft of commercial offices with over 40 businesses already in operation and offers new companies’ grade A office suites from 4,365 sq ft to 28,771 sq ft.

The park has recently welcomed Johnston Press in December 2014 to its impressive tenant line up.  The owner of the Sunderland Journal will relocate from its current Pennywell facility into some 9,000 sq ft within Alexander House on a new 10 year lease in February.

The business park boasts a state-of-the-art telecommunications infrastructure, sustainable buildings, flexible design, excellent public transport services and a powerful partnership with Sunderland City Council. It provides property for small high growth companies, right through to large corporates such as RWE npower.

The North East of England has a proven track record of attracting world leading businesses to the region, and Sunderland’s Software City Initiative has helped the city to become one of the UK’s top locations for new business start-ups.

Jonathan Shires, Senior Director of Office Agency at CBRE Leeds, said; “Rainton Bridge Business Park has strong occupier appeal due to its established location, modern office accommodation and good connectivity to the cities of Sunderland and Durham.  Following the recent letting to Johnston Press, we are in further detailed discussions with several other occupiers and hope to announce deals in due course”

Patrick Matheson, Partner in Office Agency at Knight Frank added, “The recent acquisition by XLB Property has placed renewed focus on attracting new tenants and we believe the remaining office space will be highly attractive to a wide range of occupiers due to its high quality space and stunning landscaped environment.”

William Poole at XLB added; “Rainton Bridge Business Park is situated in a premier position within the North-East and has built a reputation as one of the North’s leading business parks. Given the strong occupier market and high quality office accommodation provided on site we anticipate a strong 2015.”

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Cardiff Waterside, an Aviva Investors supported scheme in the heart of Cardiff Bay, has announced its Caspian Point office development is close to full occupancy, following the completion of three new deals.

In moves that see Caspian Point strengthen its position as one of the most popular and important office developments in the Capital city and reach 95 per cent occupancy, three new deals have been completed in recent weeks by leading property agents, Knight Frank and Cooke & Arkwright. These include:

·     Sapiens International, a global leader in providing software solutions for the insurance industry, now occupying the whole of the third floor, 12,800 sq ft, on a 5 year lease

·     Creditsafe Group, the world’s most used provider of on-line company credit reports committing to 12,785 sq ft on a ten year lease

·     Energy Saving Trust, the number one organisation helping householders, governments, businesses and organisations save energy, committing to 3,800 sq ft on the 4th floor

The news also means that across the whole Cardiff Waterside office development, consisting of 460,000 sq ft, only 8 per cent of space is left available.

Mark Sutton of Knight Frank and Ben Bolton of Cooke & Arkwright, the joint agents for the development commented:

“These deals are fantastic news for Cardiff Waterside but also for the city as a whole. It is important that leading international organisations see Cardiff as a good place to do business, and the decision to be based at Cardiff Waterside is made simpler by not just its excellent location, but also the Grade A quality office space available, which is in short supply.

“Cardiff Waterside is one of the leading office destinations in the city and this latest announcement and the fact the whole development is so close to being fully let underline that fact.”

Reinforcing the importance of Cardiff Waterside as a location, Cato Syversen, CEO of the Creditsafe Group adds: “It is important that as a company we are seen to be at the heart of business activity in the region and Cardiff Waterside fulfils that need for us.

“Cardiff Bay has had huge investment in recent years and has become a focal point for business growth and development; Cardiff Waterside is at the heart of that growth. We are delighted to have signed a deal that will see us staying in the area for the next ten years at least.”

More deals are expected to be announced by Cardiff Waterside in the coming months and there is planning consent granted to develop a further 625,000 sq ft of office space across four sites within the development in the coming years.

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The London office market produced its best performance since 2000 last year with take-up of office space in central London rising by 16% to 15.9 m sq ft, according to new figures from Knight Frank. This is well ahead of the ten year average figure of 13.0 m sq ft.

The research was presented at Knight Frank’s annual central London breakfast at the Dorchester Hotel on Park Lane.

Key office leasing market points:
Supply of office space fell by 20% in 2014 to 12.9 m sq ft; the lowest level since 2000.
Office rents in the City of London increased by 4% to £62.50 per sq ft, in response to a 24% fall in supply.
In the Northern City district, which covers the tech-biased areas like Shoreditch and Clerkenwell, rents were up 5% to £52.50 per sq ft.
Rents in the prestigious Mayfair district increased by 10% to £107.50 per sq ft.

Dan Gaunt, a leasing partner at Knight Frank, said: “The office market has moved in favour of the landlord thanks to a large fall in supply. Demand levels remain strong going into 2015, particularly from the up-and-coming digital and creative industries. Consequently, I see rents rising this year by another 10% in the City, 9% in the Northern City, and 7% in Mayfair.”

James Roberts, chief economist at Knight Frank, said: “The growing influence of the technology sector on the London economy is borne out by the numbers. Digital and creative firms were the largest source of office demand in 2014, which is the fourth year in a row, as firms like Amazon, Google and Twitter expand in the capital.  This demonstrates that London is re-balancing away from its previous over-reliance on the financial services sector, and is growing as a global hub for digital innovation.”

Key investment market points:
Investment sales volume for 2014 was £19.4 bn, which is in line with 2013’s figure of £19.6 bn and well ahead of the ten year average figure of £13.1 bn.
75% of sales by value were to overseas investors.
Key deals included the Qatar Investment Authority buying the HSBC Tower for £1.2 bn, and Brazil’s Safra Group acquiring 30 St Mary Axe (a.k.a. the Gherkin) for £726 m.
Capital values rose in almost every district.

Nick Braybrook, an investment partner at Knight Frank, said: “To have seen sales in 2014 nearly match the record figure of 2013 speaks volumes about the underlying strength of demand. Investors are being drawn to London as the rental growth is coming through, and yields of 3.75% to 4.25%” for London offices look high when bond yields in Europe are below 1% for the leading nations. That is a big spread and I expect it to narrow in 2015 as London property values increase again.”

Stephen Clifton, partner and head of central London offices at Knight Frank concluded: “2014 was an impressive year for central London in both the leasing and investment markets. The capital has built up new industries since the financial crisis, particularly in new technology, which have taken offices in up-and-coming districts, like Shoreditch, Southbank, and King’s Cross. But their influence – in regards to innovation and ambition – can be felt across Central London as other sectors compete for space and talent.”

“As tenant demand has migrated into the new districts, the investors have followed, and values have increased – an office market equivalent of the ‘gentrification effect’ seen in the housing market. This year I see more investors looking at development sites, in order to take advantage of the 20% fall in supply that occurred in 2014 which is pushing up rents”.