Office block sale to be a key test of confidence

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A LANDMARK office block is up for sale opposite the new Trinity Leeds shopping centre in what will be seen as a key test of investor confidence in the city.

DTZ is marketing CGU House for £8.16m, reflecting a net initial yield of 11.75 per cent, and said early signs are positive.

“It’s only been out for a week but so far it’s been well received with a number of local and national property companies looking at it,” said Tim Cameron-Jones, head of office at DTZ in Leeds.

He highlighted the “aesthetic improvement of the immediate environment” as Land Securities nears completion of its ambitious £350m project, the only major retail and leisure development to open in Western Europe this year.

Trinity Leeds is 90 per cent let and will be home to leading international brands including Mango, Hollister, Superdry, Topshop/Topman, H&M, Marks & Spencer, Primark, Everyman and D&D London.

Mr Cameron-Jones said the national view of Leeds is “absolutely huge in perception and PR terms” and while the immediate benefits for the office market are indirect the overall impression is one of a city in the spotlight.

CGU House is wholly let to Aviva until 2017. The insurer pays annual rent of £1m for the 50,000 sq ft, seven-storey building, which was built in 1992.

DTZ said investors will be able to benefit from the transformation of Boar Lane, which was looking rundown before work started on the Trinity Leeds development.

DTZ said: “Further schemes on Boar Lane will establish this as a prime commercial and retail location.”

CGU House is currently owned by a group of private Irish investors. The block was bought for around £14.5m in 2004, near the top of the property boom.

The lower asking price of £8.1m starkly illustrates the extent to which commercial real estate prices have fallen since the financial crisis.

The ensuing credit crunch led to a sharp reduction in speculative development, resulting in a shortage of new grade-A office space in the city.

Mr Cameron-Jones predicted that the little remaining stock will be fully let this year and raised concerns about the economic impact that this will have on the Leeds economy.

“If businesses cannot find somewhere to put staff and to grow it will constrain the performance of the city,” he warned.

But Leeds will likely see a wave of new office refurbishments and pre-let developments this year and next as recession-proof professional services firms approach the end of leases.

Accountants PwC and law firms Squire Sanders, DAC Beachcroft and Shulmans are among those to have issued requirements for office space. Big Four firm KPMG has been the first to move in the pre-let market after agreeing to become anchor tenant of the Sovereign Square development.

Office head Chris Hearld has said the £30m development has the “hidden benefit” of boosting confidence in the city.

Mr Cameron-Jones said he would welcome new pre-let developments but none would have the effect of increasing the amount of new grade-A office space in Leeds.

“They are fantastic deals for the city. What they won’t do is add any new stock,” he said.

MEPC said in September that it is preparing to tender for contractors to kick-start development of its Wellington Place scheme.

It is in competition for covenants with rival developers at Whitehall Plaza, City Square, Broadgate and Sovereign Square.

Last year saw three significant office transactions in the Leeds market for 6-7 Park Row, Princes Exchange and 100 Wellington Street.

bernard.ginns@ypn.co.uk