There is optimism over the sale of Edinburgh office complex despite political turbulence, writes Bob Serafini

Scotland’s commercial property market this week gets its first taste of the impact of the Brexit vote announcement as bids come in for one of Edinburgh’s finest office flagships.

This interesting test will show the capital markets’ appetite to continue to invest in prime Grade A assets here, with the opportunity to buy the Exchange Place complex of three office buildings.

Cushman & Wakefield and joint selling agents JLL are seeking offers over £85 million for the 214,655 sq ft property, reflecting a net initial yield of 5.56 per cent.

David Davidson, the investment expert recently made Cushman’s chair in Scotland, told The Herald he was cautiously optimistic of a good response, even in the face of global economic issues such as oil prices, the slowdown in China, the impending European vote and the bit of political uncertainty still specific to Scotland.

"This sale will be a significant marker for Scotland and the property market," he said. "The majority of interest received is international. Mainland European and overseas investment clients are far less concerned about these kind of worries. There are all sorts of macro and micro economic risks in every market they go to and actually they perceive Scotland and the UK to be a relatively safe place to put their money." Recent office sales in Edinburgh have been similarly pitched in terms of yield, with an overseas private client of HSBC paying £93.75m for Standard Life’s HQ in Lothian Road (5.08 per cent), Trinova purchasing Citymark at Fountainbridge for £43.65m (5.8 per cent) and Cording Real Estate buying Westport 102 for £29.2m (5.17 per cent).

Edinburgh Council’s sale of their Atria office scheme in Morrison Street, for sale at £100m, is believed to be under offer at 5.63 per cent, but is taking months to complete.

Exchange Place, being sold by Aberdeen Asset Managers on behalf of Scottish Widows, is actually three separate office buildings completed in 2009 in a campus setting.

The properties, with top of the range facilities and offering best in class sustainability credentials, are fully let to quality tenants including Blackrock, Hymans Robertson, Wood Mackenzie, Valad and Scott-Moncrieff on leases with an average unexpired term of 10.6 years, bringing in more than £5m a year in rent.

Recent headline rentals in Edinburgh, such as Quartermile 4 and 6 St Andrew Square, have topped £30 per sq ft, considerably ahead of what is being paid at Exchange Place, allowing prospective purchasers room for optimism about future rental growth.

Davidson rejected claims that UK institutions were not currently buying in Scotland. He acknowledged that in terms of last year’s £2.2bn Scottish total they had been net disinvestors, taking some money out, but argued the funds were just being more selective in what they purchased.

After some inevitable upheaval from the recent merger of his company and rival DTZ, he was patently pleased to be on the ground in the market with a tangible deal in prospect. The combined firm, trading as Cushman & Wakefield, now has 43,000 employees in 60 countries and becomes one of the largest commercial real estate services firms in the world.

In an increasingly global market, their main rivals are CBRE and JLL. "The key thing in terms of the business is making sure we are punching our weight in Scotland relative to our two largest competitors and are clearly seen to be on the same platform as them," said Davidson.

"We are lucky there was so little overlap in Scotland. You would have thought that with two big businesses of similar size in terms of numbers and in the same Glasgow and Edinburgh markets, there might be, say 20 per cent overlap, but that has not proved to be the case."

From the DTZ side, head of Scotland Stuart Dorward says the merger just makes sense, adding a strategic energy team, residential, development and rating service lines, which Cushman did not handle out of Scotland, as well as bringing real depth to the market coverage.

The focus so far has been on people, "getting the DNA together", and ensuring teams continue to work quickly and effectively. There has been some re-tasking and refocus, with offices in the capital combined at Edinburgh Quay and a Glasgow base still under review.