Open for office


The office investment sector has its challenges at the moment, with a move to hybrid working reducing occupational demand, finance costs up and appetite for banks to fund new acquisitions at best constrained, and both landlords and tenants transitioning to more energy efficiency and sustainability.

A recent report from the CBRE showed the impact of all this on the UK office market, with office investment volumes having plummeted by 70% in H1 2023 compared with a year earlier. It further identified that acquisition activity, especially at the larger lot sizes, is being severely constrained by the rising cost of senior finance.

Like any market, with falling demand and a largely static supply comes a downward movement in price, with the CBRE reporting further increases in valuation yields over H1 2023, above and beyond outward movements in H2 2022.

Meanwhile, the focus among office tenants is on the best space, both to attract employees back to the office on a more frequent basis each week and to meet their sustainability goals, particularly for large corporates wanting to make progress toward a zero-carbon target.

This phenomenon is not solely for the UK office, with us at 90 North seeing it on the office assets that we manage both in the US and continental Europe. Tenants are upgrading their accommodation, even if the square feet they occupy are reducing.

At the same time, many smaller and medium-sized tenants are valuing flexibility, with shorter lease commitments, including often taking serviced office space and embracing hot desking where the number of employees exceeds the number of desks.

Against this backdrop of fundamental changes in the UK office sector comes news of new acquisitions from Islamic investors.

The Bank of London and the Middle East (BLME) recently acquired a Newcastle office building, fully let to alarm system specialist Verisure. What stands out with this GBP18 million (US$23.31 million) purchase was the lease length, with a 14- year unexpired term providing the long dated income loved by investors.

Embracing the increasingly multi-let nature of office investments, and the demand for energy efficiency, Sidra Capital completed a GBP40 million (US$51.8 million) acquisition in Guildford, to the west of London. Significant upgrade works had been completed, achieving the necessary BREEAM and EPC energy ratings that tenants crave.

It just goes to show that as markets move, opportunities arise that others may have missed, with both the BLME and Sidra Capital being able to take advantage.

Written by Philip Churchill, first published in Islamic Finance news Volume 20, Issue 30 dated 26th July 2023.