REAL ESTATE - Aviva’s pension fund has acquired an empty Leeds office block for around £11m (€15.8m).

Morley, the financial services group’s asset management arm, completed the deal for the property – once owned by the Department of Work & Pensions – on the fund’s behalf.

Pension fund manager James Cooksey said he based his optimism for the speculative purchase on demand for office space in regional UK cities. ING, the previous owner, recently refurbished the block at a cost of £9m.

“We’ve seen good occupational demand, which will drive rental growth,” he said.

Morley expects the letting programme to be complete within 18 months, following a marketing campaign aimed at prospective tenants. Around 11,000 sq ft of the building is already under offer.

Cooksey said the fund would adopt a “flexible” leasing strategy, offering some short-term leases of two—five years instead of the average 10—15 years. “We can also be flexible with rents and incentives,” he said.

Although the initial yield on the empty building is “non-existent”, Cooksey said, he expects an annualised yield of 8—9% over a five-year period. In March, the fund cut the expected rate of return on its UK property portfolio from 6% to 5.95%.

Morley, in acquisitive mood, is looking at office real estate in regional cities including Bristol, Manchester, Birmingham, Newcastle, and Edinburgh and Glasgow.

“Many of our funds are cash-positive. As a house, we’re busy acquiring,” he said.