lismore real estate

Lismore’s review highlights positive Scottish investment market during 2021 with total volumes up 24% from 2020

Alternatives market rebounds strongly and ESG continues to drive pricing Leading independent property advisory firm, Lismore Real Estate Advisors today released its comprehensive review of the Scottish investment market for the final quarter of 2021 and predictions for 2022. Despite the ups and downs faced during 2021, the Scottish investment

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BDC 321 : Oct 2024

lismore real estate

Prime “Net Zero Ready” Edinburgh Development Site Comes to the Market

Finance House offers residential consent and BTR potential A prime residential development site in the west end of Edinburgh has been brought to market by Lismore Real Estate Advisors and Scarlett Land and Development, on behalf of Square and Crescent. Located on Orchard Brae, between the west end and Stockbridge, Finance House is immediately west of Edinburgh city centre, via the main arterial route of Queensferry Road. The Finance House development site extends to 2 acres and benefits from minded to grant planning consent for 151 apartments, over a total area of circa 135,000 sq ft. It also offers build to rent (BTR) potential for 172 apartments, subject to planning consent. The main building was constructed in 1968 for Lloyds Bowmaker over eight storeys, with a substantial five-storey extension added in 1978. The 1960’s building, which is almost entirely of concrete frame construction will be retained and converted in 86 apartments, whilst the 1970’s building will be demolished and replaced with a new build block, containing 65 residential apartments, ranging in height from three to five storeys. The development will also feature 3,000 sq ft of office/coworking space on the ground floor, and 23,000 sq.ft of private and communal external amenity spaces. With vehicle access from Learmonth Gardens, the site will have 32 car parking spaces plus 380 bike spaces. With sustainability credentials firmly in mind, the development is designed to be net zero ready – all-electric energy, with a predicted EPC rating of ‘B’ and an aggregated reduction in CO2 emissions of 40.6% lower than a baseline compliant development. The re-use of existing concrete frame will capture embodied carbon. The design standards ensure the development will achieve net zero in regard to operational carbon when the grid reaches net zero. It includes air source heat pumps via common centralised plant to provide heating and domestic hot water throughout. The standards will also meet the requirement of the new build heat standard coming into force in Scotland in 2024. Colin Finlayson, Director of Lismore Real Estate Advisors said: “Few UK cities can match the performance of Edinburgh’s private residential market, which has a proven history of growth and resilience, due to a combination of constrained supply and strong demand.  “This development opportunity has so much to offer and is ideally placed in Edinburgh’s high desirable west end.  It will be a real draw and we anticipate strong interest from potential developers, as well as institutional investors seeking exposure to the Edinburgh residential market.” Will Scarlett, Founder and Director of Scarlett Land and Development adds: “Large scale prime residential sites with planning consent rarely come to the market in Edinburgh. Not only does Finance House benefit from minded to grant planning for 151 apartments, it is also net zero ready – all electric (Air Source Heat Pumps) and uses no fossil fuels. “The opportunity also exists at Finance House for a BTR scheme of 172 units within the same massing in a city that boasts some or the strongest fundamentals in the UK, yet lags other regional cities in terms of supply due to multiple constraints.” Lismore Real Estate Advisors and Scarlett Land and Development are selling agents for Finance House and the architect is Morgan Architects. Further information on can be found HERE https://lismore-re.com/wp-content/uploads/2022/09/24229_FINANCE_HOUSE_FINAL.pdf

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Lismore’s review highlights that despite growing headwinds, the Scottish investment market has seen a pre-summer flurry of activity

Leading independent property advisory firm, Lismore Real Estate Advisors today released its review of the Scottish investment market for the second quarter of 2022. Following a strong start to the year, Q2 has continued the momentum with transactional trading of circa £612m, up some 104% on Q2 2021. Activity for the quarter was 56% above the five-year average, although the average is obviously skewed by a Covid hit Q2 2020. Excluding 2020, the Q2 2022 figure is 27% above the average. The standout deal of the quarter was HFD Property Group’s £215m sale (4.50% yield) of 177 Bothwell Street, Glasgow to Pontegadea, one of the biggest regional office deals ever concluded, with ESG credentials driving premium pricing. Other key transactions included the £30.2m sale of the Premier Inn, Sauchiehall Street, Glasgow, the £16m sale of 123-129 Buchanan Street, Glasgow and the sale of 124-125 Princes Street, Edinburgh for £15.8m. A number of significant deals, particularly in the PBSA market, are due to complete early in Q3 which should provide a pre-summer flurry before what could be a quiet summer as investors take stock of the macroeconomic environment. Pressure on pricing Pricing likely to come under pressure cross sector on assets which are not absolutely prime, particularly if they do not meet ESG credentials. This is further driven by increased cost of capital and more cautious decision making. UK pension funds and investment managers continue to seek secure long income defensive stock, particularly in the logistics and PBSA sectors. There remains a significant weight of capital from overseas investors, particularly from North America, the Middle East and Europe. UK based property companies continue to be acquisitive in the retail warehousing and industrial sectors, targeting the best locations with strong occupational dynamics where they can achieve optimum pricing/value. Colin Finlayson, Director of Lismore comments: “Cash remains king, asthe increasing cost of capital for debt backed investors is creating an advantage to cash investors – if they can move quickly then opportunities will arise in the second half of the year. “There remains a persistent strong demand for PBSA from sector specialists and funds, which is driving pricing. The Scottish BTR market continues apace in Glasgow and Edinburgh although build cost inflation is keeping the supply pipeline in check. “Aberdeen could see resurgence and be one of the winners over the next six months, with investors seeking out higher yielding stock to balance their portfolios. The Granite City may well begin turning heads, with a yield discount to prime central belt assets of circa 400-500bps. “After a strong Q1, caution in the market is leading driven by the war in Ukraine, rising inflation and more challenging debt conditions, has caused by investors to pause for breath.” Investors expect yields to soften for the remainder of the year Lismore investor research on the office market has shown that 61% of investors expect yields to soften over the next six months and it was noted that prime London yields have already begun to soften, with the regions traditionally lagging behind. Funds and investment managers were the most pessimistic with 100% of funds and 63% of investment managers anticipating yields cooling in the remainder of 2022. However, a quarter of investment manager expected yields to harden in the second half of the year. Property companies are more bullish with 64% expecting yields to stay the same. Lismore’s research findings showed that location was the key driver for occupational demand, accounting for 32% of responses, followed by total occupational costs by 26% and macroeconomic sentiment by 24% of respondents, with persistently high inflation and rising interest rates identified as key issues over the next six months. Post pandemic, 46% of respondents believe that the importance of the office has decreased, with investment managers being split 50/50 between the importance increasing and decreasing. For an expert view on the office market, Lismore spoke with Stephen Lewis, managing director, HFD Property Company, who said: “Investors’ considerations will mirror those of occupiers, especially for offices. The key factors are the flight to quality and ESG; however, well-being, connectivity and other attributes will also contribute to the selection of one building over another. “Our project at 177 Bothwell Street has delivered a range of market ‘firsts’, including the incorporation of Scotland’s first metro data centre, rooftop running track and drone landing pad. It’s about future-proofing and providing resilience.” “We are seeing all types of occupiers embarking on their own ESG journeys. Across our portfolio we are undertaking a significant decarbonisation project to improve energy efficiency, increasing the use of renewable energy and installing infrastructure to support electric vehicles. It’s important for us as a business, but more importantly, it’s something our occupiers are looking for. “Over the next 10 to 15 years, construction of modern workplaces will evolve and materials used will largely be driven by decarbonisation, both from an operational and embodied perspective. There are some myths to dispel around the choice of materials – it is possible to build a fully glazed building and still meet energy performance targets, however, it undoubtedly takes a lot of work. There’s also a need to balance both sides of the equation between operational and embodied carbon. “We can foresee is that there will an even greater focus on data and ‘smart tech’ in its broadest sense, including sensor networks to gather real-time information about how occupiers use buildings. “Looking forward, hybrid working is here to stay but we will see more changes as macro factors influence the way we work. What we haven’t been able to fully determine yet is the impact on the demand for office space. While overall occupational demand for space has reduced, it isn’t necessarily aligned to working from home with more space also being converted to alternative work environments. “Something that remains to be seen is how policies on remote working might change when the recession bites. During economic downturn, the need to maximise productivity, innovation and collaboration is never higher, and I suspect that will

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FIRST WORLD HYBRID REAL ESTATE Plc (FWHRE) snaps up suburban retail park

West Retail Park acquired in £11.70 million deal FWHRE, an Isle of Man Regulated Fund, listed on The International Stock Exchange (TISE), has completed the acquisition of units 1A and 1B, West Retail Park in the affluent residential suburb of Milngavie, just north of Glasgow. The two units are let to Aldi and Home Bargains until June 2039 and June 2034 respectively. The Aldi rent reviews are linked to RPI. Over the past 24 months, both supermarket and discount retail assets have been highly sought after, with investors attracted by the retailers resilient trading performances and the long leases that characterise that sector. The purchase price of £11.70 million reflected a net initial yield of 4.86%. Lismore Real Estate Advisors and Avison Young jointly advised the purchaser, whilst Sheridan Keane acted for the vendor.

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Lismore’s review highlights positive Scottish investment market during 2021 with total volumes up 24% from 2020

Alternatives market rebounds strongly and ESG continues to drive pricing Leading independent property advisory firm, Lismore Real Estate Advisors today released its comprehensive review of the Scottish investment market for the final quarter of 2021 and predictions for 2022. Despite the ups and downs faced during 2021, the Scottish investment market has fared surprisingly well with investment volumes trading at circa £1.345bn, a 24% increase on the total for 2020. The emergence of the Omicron variant and the return of restrictions continues to bring challenges across the entire property market and global economy but quarter 4 trading remained strong at £520m, up 27% on Q4 2020. Key transactions included the £32.2m sale of Sainsbury’s at Inglis Green Road, Edinburgh by Inglis Property LLP to Urbium Capital Partners LLP, the off-market sale of Scania at Eurocentral by West Ranga Property Group to DVS Property for £10.725m and the £58m sale of Exchange Place One in Edinburgh to CBRE Investment Management. Chris Macfarlane, Director of Lismore comments: “The wall of overseas capital chasing stock continues and pricing reached pre-pandemic levels in the food stores, logistics and retail warehousing sectors. However, challenges remaining for significant parts of in-town retail/leisure and investors continue to grapple with offices, other than those of the very best quality or which can be adapted to meet more challenging ESG credentials. “When looking at market themes, one part of the market which was hit hard initially but which has rebounded (in part) very strongly is the alternatives sector, covering PBSA, management contract hotels and serviced apartments. The strongest, well-located assets have seen occupancy levels recover and while net operating income might not be quite back, investor interest has been stirred by their resilient qualities. “In terms of pricing, foodstores, convenience stores and distribution have seen the strongest sharpening of yields of between 50-100bps over the quarter. Core-plus opportunities have been relatively limited but we are seeing a softening of pricing around Grade B offices as investors come to terms with increasing levels of capex and ESG challenges. The only sector really offering “value-add” pricing is the shopping centre market where risk remains but the best assets are starting to find their level, at between 50-90% discount to purchase levels. “UK institutional activity remains very focused on longer income defensive stock including retail warehousing and distribution, although we have seen a welcome return by an institution to the Edinburgh office market for the first time in a number of years. “Overseas investors continue to target Scotland (Edinburgh in particular), with buyers from the Middle East and mainland Europe all remaining active but the overwhelming weight of capital has been from North America. The level of distressed selling continues to be very limited with the more opportunistic buyers looking further up the risk curve, either direct development, vacant buildings or shopping centres.” With a seemingly brighter 2022 looming, the latest investor research undertaken by Lismore predicts that the top three performing sectors in 2022 will be retail warehousing (36%), distribution (28%) and multi-let industrials (17%). Although prime yields have begun to harden, retail warehousing still offers some good value given the rapidly changing retail market and strong occupational demand. The support for foodstores has fallen significantly (6%), perhaps an acknowledgment that a lot of the performance in the sector has come during 2021. The office sector was the most poorly backed by respondents, with concerns over capex requirements and future working habits being mentioned as headwinds for the sector. A significant majority (69%) of respondents in Lismore’s research expect to be net buyers in 2022, with 21% neutral. Investment managers and property companies look to be most acquisitive with 83% and 73% respectively anticipating they will be net buyers in 2022. Just over 50% of funds and private equity respondents expect to be net buyers. Only 10% of respondents expect to be net sellers, suggesting another year of limited stock and inevitable pricing pressures for the best opportunities. The Lismore review also features an in-depth interview with James Dunne, Head of UK Transactions at abrdn, who comments: “The pandemic has highlighted the benefits of having a diversity of income and sectors within a portfolio. The breadth of the alternative sectors provides an increasingly significant part of the real estate investment market, with the hotel sector offers an interesting pattern in durability. However, this recovery trend has been narrow and will continue to be driven by the best assets and the best locations significantly outperforming the market. “The extended stay market (apart-hotels and serviced apartments) was already growing and the ability to pivot from more lucrative short term stays to a longer term model provided certainty of income and meant that the sector showed very strong resilience throughout the worst of the pandemic and therefore a strong rationale to invest both for the protection in the downside but also the predicted performance in a more normal market. “We are still in the early stages of the attitudinal transformation of real estate from providing space as a product to embracing space as a service. The most visible area where we have seen an ongoing shift to a more service real estate environment is the office sector. This has been accelerated and is an area that could continue to develop rapidly with the long term return to the office. The retail sector will have to continue to adapt if it is to stay relevant to the demands of consumers and offer more experiential retail, most likely digitally enabled to lead a partial, targeted recovery in the sector. “The one thing we can be sure of is that the evolution of how real estate is used and provided and the increased ‘hotelisation’ of all sectors will continue apace over the next few years and we as investors have to continue to not only adapt to but drive forward.” The full Lismore Quarterly Review is available to download from: HERE

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Lismore Real Estate Advisors concludes £10.5m sale of Fife’s premier industrial estate

Lismore Real Estate Advisors (Lismore) advised a UK fund client on the £10.5m sale of the multi-let Belleknowes Industrial Estate in Inverkeithing to PATRIZIA and Caisson. The sale price reflected a net initial yield of 5.95%. Belleknowes Industrial Estate is Fife’s premier industrial estate and is located only 15 minutes from Edinburgh airport. Extending to 140,000 sq.ft, it comprises 22 units of varying sizes and provides trade, warehousing and light industrial accommodation. It has a strong occupier base including Network Rail, Kwik-Fit, Speedy Hire, Plumbstore and Bella & Duke. Commenting on the sale, Chris Macfarlane, director of Lismore said: “The sale price and competitive bidding from both UK and overseas investors on this asset highlights the continuing demand for multi-let industrial opportunities across Scotland.” Lismore Real Estate Advisors and Shepherd & Wedderburn represented the vendor, whilst PATRIZIA and Caisson was advised by Galbraith and Morton Fraser.

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