Market demand for secondary office investments over the last two years has seen agents and property companies chasing the best assets, at or close to double-digit returns on capital.
Office rental values have weathered the storm of a slowdown in demand post-Covid, but investors remain cautious of the long-term sustainability of the sector, with changes in the dynamics of work time split between office and home.
In this environment, Drake Howard Property marketed 2020 House, Siskin Drive, Middlemarch Business Park as a sale and leaseback investment proposition over two years. During which time a steady stream of interest was recorded, albeit with buyers only prepared to consider a 10% return on the prospective lease rent of £142,000 per annum.
To the agent, an investment price of less than £1.4m, equivalent to £145 per sq. ft. made no sense at all. 2020 House is an attractive, modern office building, with 60 parking spaces, on a prestigious business park with unrivalled dual carriageway access to the motorway network. The owner was prepared to accept advice not to under sell the asset and, this faith has been rewarded.
Martyn Howard revealed, ‘it was apparent values in the office investment market had dipped substantially from vacant possession sale prices. The client was not bound to occupation of the building and could readily relocate to alternative office space. Therefore, we cast our marketing net wider and introduced the property to prospective owner occupiers on our radar.’
One such prospective occupier was IPG Photonics, a world leading producer of fibre laser and laser system solutions. The business was relocating from a purpose-built facility at nearby Ansty Park and searching for a freehold industrial unit with office content.
2020 House proved adaptable to IPG requirements, with strip out of raised flooring and suspended ceilings at ground level to create a product showroom and workshop facility, including new loading access on the car park frontage. Upper floors to be used for management, administrative and sales offices. The land and car park offering potential expansion space.
A deal was struck at a figure over £180 per sq. ft., to include an inventory of furnishings and equipment to create a ‘turnkey’ solution for the office space.
‘This was the ideal outcome for our client, Phocas (UK) Limited. The Australian Group parent wished to dispose of the asset from the company balance sheet and was able to secure a very short-term leasehold rental on a 4,750 sq. ft. office at 4M Middlemarch. Just a stone’s throw from 2020 House. The smaller space fitted mixed office & home working at the software company and, a short lease provides flexibility to changing circumstances at a high investment and growth rate time for the business.’