prime edinburgh 118 lothian road morrison...
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118 LOTHIAN ROAD &3-5 MORRISON STREET
PRIME EDINBURGH CITY CENTRE OFFICE INVESTMENT
EDINBURGH EH3 8BG
118 LOTHIAN ROAD
EDINBURGH EH3 8BG
&3-5 MORRISON STREET
02
INVESTMENT SUMMARY
Rare opportunity to acquire a significant building within Edinburgh city centre’s prime office location The Exchange District.
Capitalise on the city’s dynamic occupational market historically low levels of supply and improving rents.
Imposing building occupying an important corner site in the heart of The Exchange.
56,970 sqft of modern office accommodation constructed in 2003 with additional leisure and retail space.
Fully let to Franklin Templeton Global Investors Ltd, ABC Cinemas Ltd (t/a Odeon) and Sainsburys Supermarkets Ltd.
Total passing rent of £1,969,500 per annum.
Weighted average unexpired lease term of 3.24 years.
Heritable/outright ownership interest (Scottish equivalent of English freehold).
Offers over £28,500,000 exclusive of VAT.
A purchase at this level would reflect a net initial yield of 6.47% allowing for purchaser’s costs of 6.76%.
EDINBURGH EH3 8BG
118 LOTHIAN ROAD
3-5 MORRISON STREET
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THE CITY IS RECOGNISED AS:
A global centre for tourism with over £4.5bn generated from international visitors in 2017.
The host city for the world's largest arts festival (International & Fringe Festivals) attracting c. 4 million visitors a year and generating over £313m in 2017.
A city with a high quality of life and bright future;
RATED 1ST IN FDI STRATEGIES “GLOBAL CITY
OF THE FUTURE”
HOME TO......key technology companies such as Computershare, Skyscanner, Rockstar North, Cirrus Logic, Fandual, Craneware and FMZ.
80,000Major centre for education with 8 universities and further education colleges and over 80,000 UK based and international students.
£500BNThe UK’s largest financial centre outside of London with over £500bn of assets under management and headquarters of Virgin Money, Aberdeen Standard, Baillie Gifford and RBS.
THE BEST MID-SIZED EUROPEAN CITY OF THE FUTURE
(Reference: Financial Times fDI Magazine) .
SECOND BEST PLACE TO LIVE IN
THE WORLD(Reference: Deutsche Bank Quality of Life Survey 2017).
Edinburgh is the capital city of Scotland and home to the Scottish Government. It has an estimated population of 513,200 people increasing to 1.36million within the “Edinburgh city region". This is projected to increase by 20% over the next 20 years making it one of the UK’s fastest growing cities.
EDINBURGH CONNECTIVITY Edinburgh benefits from excellent connectivity locally, nationally and internationally due to continued investment in its transport infrastructure. In addition to the below, Edinburgh has an excellent local bus service.
AIR
Edinburgh Airport is located just 8 miles west of the city centre and is easily accessed via the motorway, tram and bus networks. Acquired by Global Infrastructure Partners in 2012, the Airport continues to benefit from significant investment and is Scotland’s busiest airport with over 37 operating airlines flying to in excess of 150 destinations.
DRIVE Edinburgh benefits from direct access to the national motorway network/system connected by the A1 and A7 from the south and south-east, M90 and A9 from the north and the M8 from the west.
RAIL Edinburgh’s two main railway stations, Haymarket and Waverley, are within short walking distance from the subject property. Both stations offer direct services to London and services to all major Scottish centres.
TRAM The city’s tram network opened in 2014 and provides a direct link from Edinburgh Airport into the city centre through west Edinburgh. The closest tram stops to 118 Lothian Road and 3-5 Morrison Street are at Shandwick Place/West End and Haymarket.
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LAURISTON PLACE
EDINBURGH CASTLE
PRINCES STREET
HAYMARKET STATION
WAVERLEY STATION
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118 LOTHIAN ROAD
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EXCHANGE DISTRICT 118 Lothian Road & 3-5 Morrison Street is located on the south side of Morrison Street at its junction with Lothian Road to the east and Semple Street to the west.
The property benefits from return frontage to Lothian Road an established retail/leisure pitch and arterial north to south route through the city and occupies a prominent site within Edinburgh city centre’s CBD (The Exchange).
THE EXCHANGE
The Exchange was masterplanned in the early 1990s as a natural extension to Edinburgh’s traditional office locations of the West End, Charlotte Square and George Street. It is now firmly established as Edinburgh’s main commercial centre and a key location within the office market. It is home to a number of significant financial and professional service occupiers including Aberdeen Standard Investments, Bank of New York Mellon, Black Rock, PwC, and The UK Green Investment Bank.
The property/location is superbly placed to take advantage of the city’s transport system with access to the bus, rail and tram networks a short walk away. The area benefits from a generous array of local amenities and attractions from bars, Michelin star restaurants and luxury hotels to the Usher Hall and Edinburgh Castle.
EXCHANGE DISTRICT
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AB C
F
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KEYA. EICCB. ATRIAC. EDINBURGH ONED. PORT HAMILTON (SCOTTISH WIDOWS)E. EXCHANGE PLACE 3F. EXCHANGE PLACE 2G. EXCHANGE PLACE 1
ACTIVITY IN AND AROUND THE EXCHANGEMuch of Edinburgh’s recent significant office lettings, development and investment activity has centred on the Exchange District and taken place within a 500m radius of the subject property.
CLICK NUMBERS TO VIEW
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118 LOTHIAN ROAD & 3-5 MORRISON STREET
118 Lothian Road & 3-5 Morrison Street is predominantly a substantial 6 storey plus basement mixed use (office, retail, cinema) building completed in 2003.
Comprising the site of a former ABC Cinema, the property was constructed by Take 2 Developments, a joint venture between Premier Property Group and J Sainsbury Developments.
Bounded by Morrison Street, Lothian Road and Semple Street the property enjoys a strong visual presence within The Exchange.
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OFFICES
5 MORRISON STREET Accessed via a prominent entrance on the corner of Morrison Street and Semple Street, the office element of the property accounts for over 69% of the development by floor space and is currently Franklin Templeton’s European HQ.
The impressive dedicated entrance leads onto a staffed reception area and the building’s central core connecting basement and office accommodation (1st to 5th floors) by way of 3 passenger lifts and an adjacent stairwell.
The office accommodation is finished internally to a high standard with generous floor to ceiling heights and excellent natural light providing a bright and spacious working environment. Leased to the tenant in open plan format the floor plates in part have been fitted to provide cellular offices/staff accommodation. The accommodation can be sub-divided on a floor by floor basis and emergency stairs are situated to the south and east of the floor plates.
THE 5TH FLOOR BENEFITS FROM
STUNNING UNOBSTRUCTED
CASTLE AND CITYSCAPE VIEWS
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SPECIFICATION GENERALLY INCLUDES:
• Glazed entrance and recently refurbished ground floor reception area.
• Fully accessible raised floors with 180mm void
• Suspended ceilings
• 2.7m typical floor to ceiling height
• Category 2 lighting
• 4 pipe fan coil air conditioning throughout
• Double glazed windows throughout
• 3 x 13 passenger lifts connecting to all floors
• Male, female and disabled facilities on each floor
• Shower facilities located on each of the upper floors (1 to 5).
• The tenants have installed a modern gym facility on the 1st floor.
• 10 secure dedicated car parking spaces at basement level.
• Automated meter reading and sub-metering throughout.
The building is of steel frame construction with concrete/steel deck floors. Elevations are clad with reconstituted natural stone together with aluminium framed glazed curtain walling and windows. The principal roofs are flat and covered with an insulated single-ply membrane roof system. The perimeter principal elevations are finished with standing seam mansard roofs. Main services plant is located in the basement and at ground floor level.
The basement level car park is accessed from Semple Street and provides the tenants with 10 parking spaces and bike storage.
NOTE: The retail and cinema elements of the wider property benefit from escape routes in the event of an emergency through the basement car park. Franklin Templeton have installed a back-up generator within the basement car park and this occupies one of their leased spaces.
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118 LOTHIAN ROAD
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RETAIL
3 MORRISON STREETPurpose-built for Sainsburys and currently leased to them. This element of the property is accessed via an extensive modern glazed frontage onto Morrison Street and provides convenience store accommodation spanning ground and basement floors.
Sales space is provided at ground floor level and fitted-out in Sainsburys familiar corporate style and format with ancillary staff and toilet accommodation also at this level. At basement there is a store which is connected to the ground floor via a goods lift.
CINEMA
118 LOTHIAN ROAD
The cinema is arranged over ground and basement floors with the main access via a high profile period entrance at the junction of Lothian Road and Morrison Street.
Currently providing a total capacity of c.721 people across 4 screens the tenant has undertaken their fit out of the premises to a generally high standard and in line with typical Odeon branding and format. Customer and café facilities and projection rooms are situated on the ground floor with an internal stair and lift providing access to the basement foyer where 4 double height auditoria are located alongside customer WCs and additional ticket, food and beverage sales.
All three tenants of the property are original occupants of the building dating from its completion in 2003.
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ACCOMMODATION
GROUND
BASEMENT
*Measured on a Gross Internal basis.
NB. Adjusted area of 56,664 sq ft agreed at 2014 Franklin Templeton rent review.
ABC Cinema’s lease states an assumed GIA of 14,666 sqft.
Sainsbury’s lease states an assumed GIA of 4,799 sqft.
CINEMA / ODEONRETAIL / SAINSBURY'SOFFICE / FRANKLIN TEMPLETON
CINEMA / ODEONRETAIL / SAINSBURY'SOFFICE / FRANKLIN TEMPLETON
TENANT DESCRIPTIONFLOOR AREASQM SQFT
Franklin Templeton Global Investors Ltd
Reception Ground 56.95 613
Offices 1st Floor 1,087.79 11,709
Offices 2nd Floor 1,088.34 11,715
Offices 3rd Floor 1,088.34 11,715
Offices 4th Floor 1,089.99 11,733
Offices 5th Floor 881.14 9,485
Sub-Total 5,292.55 56,970
ABC Cinemas Ltd (t/a Odeon)*
Cinema Basement 514.97 5,543
Cinema Ground 1,348.69 14,517
Sub-Total 1,863.66 20,060
Sainsburys Supermarkets Ltd*
Retail (Ancillary) Basement 115.07 1,238
Retail Ground 332.69 3,581
Sub-Total 447.76 4,819
GRAND TOTAL 7,603.97 81,849
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FIFTH FLOOR - 9,485 SQ FT
TITLE PLANSECOND TO FOURTH FLOORS - 11,715 SQ FT TO 11,733 SQ FT
FIRST FLOOR - 11,709 SQ FT
LAND REGISTEROF SCOTLAND
Officerʼs ID / Date
NORDNANCE SURVEY
NATIONAL GRID REFERENCESurvey Scale
C
MID7132470m
1/1250 NT2473SE
2281
TITLE NUMBER
2/6/2008
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TENANCY
TENUREOutright ownership interest/heritable (Scottish equivalent of English freehold).
SERVICE CHARGEThere is a small service charge in place dealing with the external elements of the property. A copy of the budget is available in the dataroom.
TENANT FLOOR AREAS (SQ FT) RENT (PA) RENT (PSF) LEASE START NEXT REVIEW LEASE EXPIRY COMMENTS
Franklin Templeton Global Investors Ltd B/G & 1-5 56,970 £1,655,000
£28.68* and £3,000 per car space 12/08/2004 12/08/2019 11/08/2021
10 car parking spaces. Rent review due as at 12/08/2019. *Adjusted area of 56,664 sqft agreed at 2014 rent review.
ABC Cinemas Ltd B/G 20,060 £220,000 £10.96 04/04/2003 04/04/2018 03/04/2028
Guaranteed by Odeon Cinemas Ltd. Reviewed to assumed area of 14,666 sqft. Rent review as at 04/04/2018 not instigated.
Sainsburys Supermarkets Ltd B/G 4,819 £94,500 £19.61 29/07/2002 28/07/2022 28/11/2028
Rent free 6 months (28 May 2019 to 27 November 2019). Rent review due as at 28 July 2022. For rent review purposes area deemed to extend to a GIA of 3,588 sqft at ground floor level and 1,211 sqft at basement level.
TOTAL 81,849 £1,969,500
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COVENANT 5A1 D&B Rating 30/09/2018 30/09/2017 30/09/2016
Sales/Turnover £48,209,000 £42,058,000 £40,990,000
Franklin Templeton Investments Limited
www.franklintempleton.com
Profit/(Loss) before Taxes £30,425,000 £15,547,000 £44,153,000
Tangible Net Worth £66,090,000 £75,220,000 £75,550,000
Employees 238 251 266
4A1 D&B Rating 31/12/2017 31/12/2016 31/12/2015
Sales/Turnover £36,281,000 £36,188,000 £37,628,000
ABC Cinemas Ltd t/a Odeon
www.odeon.co.uk
Profit/(Loss) before Taxes £651,000 £1,477,000 £5,378,000
Tangible Net Worth £32,713,000 £23,758,000 £22,281,000
Employees 491 475 471
GUARANTOR
Odeon Cinemas Ltd
5A1 D&B Rating 31/12/2017 31/12/2016 31/12/2015
Sales/Turnover £235,701,000 £220,136,000 £218,034,000
Profit/(Loss) before Taxes £19,109,000 £9,884,000 £21,644,000
Tangible Net Worth £185,127,000 £210,478,000 £201,598,000
Employees 3,176 3,072 2,906
5A1 D&B Rating 10/03/2018 11/03/2017 12/03/2016
Sales/Turnover £23,606,000,000 £23,234,000,000 £23,168,000,000
Sainsburys Supermarkets Ltd
www.sainsburys.co.uk
Profit/(Loss) before Taxes £187,000,000 £342,000,000 £406,000,000
Tangible Net Worth £4,562,000,000 £4,353,000,000 £4,458,000,000
Employees 155 269 160,300
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ASSET MANAGEMENT OPPORTUNITIES OFFICE – The subjects present a genuine opportunity for a purchaser to undertake a full refurbishment of the office accommodation at lease expiry in August 2021.
Any refurbishment/reletting programme would be well placed to take advantage of the current office market conditions namely critical lack of city centre Grade A product coupled with strong tenant demand and rising headline rents.
CINEMA – Since AMC’s acquisition of Odeon in November 2016 it has become the largest cinema operator globally and has actively rolled out a programme of refurbishment upgrades to the existing Odeon estate. The subjects have been identified as a possible candidate and as such a lease restructure and upgrade of the current offering could potentially be negotiated enhancing the visual and general appeal of the wider building.
RETAIL – Sainsbury's are original occupants of the building and have recently extended their lease.
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EDINBURGH OFFICE MARKETThe Edinburgh office market is currently experiencing historically high levels of occupier demand combined with a critically low supply.
DEMA
ND
SUPP
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MARKET OVERVIEW
OCCUPATIONAL MARKET
PRIME GRADE APrime Grade A headline rents over 2018 consolidated at £34.00 psf.
A NEW HIGH IS ANTICIPATED IN 2019.
OFFICE TAKE-UPEdinburgh office take-up in 2018 was 835,957 sq ft, 14% up from the 5 year average of 718,200 sqft. City centre take-up in Q1 this year was 188,785 sq ft 10% up from Q1 2018.
EXPANDING SECTORSEdinburgh’s growing TMT sector has provided a considerable source of jobs and letting activity in recent years (digital tech sector employment is expanding at 3 x the national rate according to the Tech Nation 2018 report).
VACANCY RATES IN EDINBURGHOverall vacancy rates for the whole of Edinburgh are estimated to be 3%. Total available supply across the city is estimated to be 1,389,290 sqft. City centre Grade A and refurbished Grade B account for approximately 474,113 sq ft. The only currently available new build city centre accommodation is at 2 Semple Street.
NOTABLE LETTINGSSeveral notable lettings by firms in the finance, insurance and legal sectors, Edinburgh’s historic demand drivers, have also bolstered take-up of late.
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SUPPLY V DEMAND RECENT/COMPARABLE CITY CENTRE LETTING ACTIVITY.
KEY TAKE-UP DYNAMICS KEY SUPPLY DYNAMICS
718,000 sqft pa (5 year average)
Rapidly reducing Grade A supply
835,957 sqft, 2018 annual take-up
3% Grade A vacancy rate
61% Grade A take-up within city centre
474,113 sqft of Grade A and refurbished Grade B available
45% above 10,000 sqft within city centre
273,000 sqft about to complete or commence on site within the next 6 – 9 months£34.00 psf – prime
office rent
Incentives at c. 15 months for 10 year term (depending on covenant plus length of lease)
DATE ADDRESS SIZE - SQ FT TENANT RENT PSF COMMENTS
Q2 2019 80 George Street 40,585 WeWork £32 - £34 New lease. Refurbished building. Traditional office core. 15 years.
Q1 2019 1 - 7 Exchange Crescent (First Floor) 31,364 Amazon £26 - £28
New lease. CBD / Exchange District location close to subject property. 10 year lease.
Q4 2018 Exchange Plaza, 50 Lothian Road, Level 2 16,716 Burness Paull £30 New lease, expansion and re-location
within building. 10 year lease.
Q3 2018 Capital Square, 5th – 7th Floors 42,751 Brodies LLP £34 - £35Pre-let of new build office in Exchange District opposite subject property. Completion scheduled for May 2020. 15 year lease.
Q3 2018 Capital Square, Part 3rd & 4th Floors 25,256 Pinsent Masons £34 As above. 15 year lease.
Q3 2018 Interpoint, Haymarket Yards 15,577 Royal London £26
New lease. Tenant previously sub-let within building from Tesco Bank. 10 years tbo at 5.
Q3 2018 Lochrin Square 15,610 Spaces £31.50 New lease. Modern building within Exchange District. 10 year lease.
Q2 2018 20 West Register Street (The Mint Building) 60,000 Baillie Gifford £34
Pre-let new build within traditional office core, due for completion 2020. 15 year lease.
MARKET OVERVIEW
With high quality space having recently seen healthy demand, levels of good quality supply in Edinburgh are heavily reduced leaving large city centre requirements with very few options. The next development cycle is awaited with little refurbished space available in the city centre.
Speculative development has been limited. Developments which have commenced have experienced strong interest on a pre-let basis.
The only new build space completed within the last 6 months was GSS Developments at 2 Semple Street which is located in close proximity to the subject property. There is significant interest in part of the building at present.
There are currently only two speculative schemes under construction in Edinburgh. BAM Properties/Hermes Investment Management’s Capital Square, 62 Morrison Street is on course to complete in May 2020 and is 56% pre-let with c. 54,000 sqft available. The other one is 20 West Register Street which is due for completion later this year and is fully pre-let to Baillie Gifford.
With limited new development options currently on site, refurbishment of existing stock continues to be pursued in order to deliver space in the short to medium term.
WITH LIMITED NEW DEVELOPMENT
OPTIONS CURRENTLY ON SITE,
REFURBISHMENT OF EXISTING
STOCK CONTINUES TO BE PURSUED
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INVESTMENT MARKET
EDINBURGH CONTINUES TO ATTRACT A BROAD RANGE OF BUYERS LOOKING TO TAKE ADVANTAGE OF FAVOURABLE OCCUPATIONAL MARKET CONDITIONS
DATE ADDRESS PRICE YIELD WAULT AREA SQ FT CAP RATE PSF COMMENTS
Q2 2019
The Leonardo Innovation Hub, Crewe Toll £100M c.5.91% c.15 yrs 439,000 c.£228
Research and development facility, single let, acquired by South Korean clients of KFIM.
Q2 2019 4 – 8 St Andrew Square £120M c.4.45%
(blended)20 yrs (office only)
108,656 c.£662
Mixed used building c.60% office and 40% retail/restaurant income split. Acquired by KanAM Grund Group with 20 yr lease to Standard Life Aberdeen over the offices.
Q2 2019
Gyle Square, South Gyle Crescent £55.17M c.5% c.10 yrs 148,796 c.£371
Single let to NHS National Services expiring in June 2029. Bought by Hyundai Asset Management. Corporate transaction.
Q2 2019 The Rutland Building £15.625M c.6%
(blended)
13.16 yrs (9.86 yrs to breaks)
27,079 c.£389
DLA Piper Scottish HQ. Acquired by Topland Group. Also includes retail unit leased to Lothian Buses for 25 year term (30% of income) Corporate transaction.
Q1 2019
Interpoint, Haymarket Yards £18.85M c.6.47%
10 yrs (5 yrs to break)
47,921 c.£393
Fully let to Royal London Mutual Assurance Society Ltd. Lease expiring Jan 2029 with tbo January 2024. Purchased by Ropemaker Properties (BP Pension Fund).
Q4 2018 1 Tanfield, Edinburgh £65.5M c.6.00% 6.2 yrs 190,846 c.£343
Acquired off market by Greenridge Investment Management for ‘UK Fund 2’ a JV with an international overseas investor. Multi-let building.
Q3 2018
40 Torphichen Street, Edinburgh £22.15M c.5.97%
8.88 yrs (5.19 yrs to breaks)
55,768 c.£397 Acquired by M&G. Building c.50% vacant at time of sale.
Q3 2018
Greenside, 12 Blenheim Place, Edinburgh £16.725M c.5.50% c.4 yrs 42,872 c.£442 Acquired by KanAm Grund Group
(German Fund).
Q2 2018
Princes Exchange, New Uberior House, Edinburgh £70.5M c.5.61% c.8 yrs 158,501 c.£445 Acquired by MAS Real Estate obo
South African clients.
Q2 2018
20 West Register Street (The Mint Building) £53.2M c.4.5% 15 yrs 60,000 c.£735
New build scheduled for completion in 2020. Acquired by Hines obo Pan-European Core Fund (HECF).
2018 was an active year for the Scottish Investment Market with over £2.5bn of stock transacted across all sectors. Activity since the turn of the year has generally been suppressed with the market pre-occupied by the ongoing Brexit process.
The Edinburgh office investment market bucks the trend with a number of significant transactions having taken place since the start of the year and a number more in legal hands. There is a significant weight of money in the market and lack of openly available stock. Edinburgh continues to attract a broad range of buyers looking to take advantage of favourable occupational market conditions and returns when viewed against other comparable UK and European centres.
NOTABLE RECENT EDINBURGH OFFICE INVESTMENT SALES
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ADDITIONAL INFORMATION
CAPITAL ALLOWANCES Capital allowances may be available. Further information can be provided on request.
EPC118 Lothian Road has an EPC rating of ‘D’.
3 Morrison Street has an EPC rating of ‘D+’.
5 Morrison Street has an EPC rating of ‘D’.
Copies of the Energy Performance Certificates are available in the dataroom.
VATThe property has been elected for VAT and therefore VAT will be payable on the purchase price. However it is anticipated that the sale could be treated as a Transfer of a Going Concern (TOGC).
DATAROOMA dataroom has been set up and access can be provided by the selling agents to interested parties.
PROPOSAL Offers are invited in excess of £28.5M exclusive of VAT. A purchase at this level would represent a net initial yield of 6.47% assuming full purchasers costs including LBTT of 6.76%.
A purchase based on a net initial yield of 6.47% would reflect a capital rate over the office accommodation of c. £421 per sqft.
SPVThe property is held in a Special Purpose Vehicle.
There is potential to purchase the shares in the SPV and benefit from the associated LBTT savings.
Further information can be provided.
118 LOTHIAN ROAD
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CONTACT INFORMATIONFor further information or to arrange an inspection please contact the selling agents:
Ryden LLP 7 Exchange Crescent, Conference Square Edinburgh EH3 8AN
Nick Armstrong Email: [email protected] DD: 0131 473 3223
Ford Swanson Email: [email protected] DD: 0131 473 3236
Peter I'anson Email: peter.i'[email protected] DD: 0131 473 3233
Ryden is a limited liability partnership registered in Scotland. Messrs Ryden for themselves and for vendors or lessors of this property whose agents they are give notice that: (i) the particulars are set out as a general outline only for the guidance of intended purchasers or lessees, and do not constitute, nor constitute part of, an offer or contract; (ii) all descriptions, dimensions, reference to condition and necessary permissions for use and occupation, and other details are given without responsibility and any intending purchasers or tenants should not rely on them as statements or representations of fact but must satisfy themselves by inspection or otherwise as to the correctness of each of them; (iii) no person in the employment of Messrs Ryden has any authority to make or give any representation or warranty whatever in relation to this property. JUNE 2019.