LGP picks up second Birmingham office at tight yield

Legal & General Property (LGP) has for the second time in a week acquired an office property in Birmingham at a keen price compared to the latest reported average prime yield for the UK city.

On Tuesday LGP announced that it has acquired the trophy office asset, No 1 Colmore Square, in the city centre on behalf of its UK Property Fund (UKPF). The investment volume of £87 mln (€124 mln) reflects a net initial yield of 4.04%.

On 28 July LGP purchased Mitchells & Butlers’ HQ offices and associated 120-bedroom Ibis Styles Hotel in central Birmingham on behalf of LGP's Limited Price Inflation Income Property Fund. The properties were acquired for £69.5 mln, reflecting a net initial yield of 3.94%.

The two deals appear to support CBRE's contention in its latest EMEA Rents and Yields marketview report for Q2 2015 of 'further yield contraction across all property sectors' in Europe. Average prime office yields in Birmingham stood at 5.25% at the end of the second quarter, according to the report.

New trophy
No 1 Colmore Square is a long leasehold multi-let office asset located on Colmore Row. The property comprises 18,660 m2 of Grade A office accommodation arranged over 10 floors together with two levels of basement car parking providing 133 spaces.

LGP said the large floor plates, ranging in size from 1,765 m2 to 2,044 m2, are considered 'the ideal size for the local market and are also divisible providing future flexibility'. Tenants include a branch of property adviser DTZ (recently merged with Cushman & Wakefield) and Ernst & Young.

Knight Frank advised LGP, while CBRE advised the unidentified vendors.

UKPF fund
Launched in 2006 with initial equity of £100 mln, UKPF has grown to over £2.1 bn due to steady inflow of capital from both retail and institutional investors. Recent acquisitions include the £135 mln Compass portfolio of six offices in the south-east of the UK, the £22.9 mln Mayfly portfolio acquisition of prime high street assets, and 14-28 Corporation Street in Birmingham which was secured for £15.96 mln.

See also LGP invests €226m for second UK PIF fund