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From Sunday Times 14th May 2006

Scotland: Property boom as funds target office sector
John Penman

COMMERCIAL property in Glasgow and Edinburgh is enjoying an unprecedented boom as fund managers target the sector.
Analysts say that in the past three months, the vast majority of commercial property deals are being done by funds rather than private investors. The funds are looking at property because of high demand for pension and investment vehicles.

The Sentinel building in Glasgow, which cost about £10m to build, sold recently for almost £40m to the London office of Germany-based Oppenheim Property Fund Management.

Prospective investors are said to be looking at Glasgow’s eye- catching Aurora building, which has just been completed.

Hermes, which manages two of Britain’s largest pension funds, bought property in Edinburgh recently.

The £38.5m purchase of the Sentinel Building from Kenmore Property Group reflected a net initial yield of 4.8% and was one of Oppenheim’s largest UK acquisitions.

The 83,700-sq-ft grade A office building has attracted blue-chip tenants including JP Morgan, Morgan Stanley, AON Insurance and ACE Insurance.

Christopher Cowdy, of Knight Frank, the company that advised Oppenheim on the Sentinel sale, said the markets in both cities were very buoyant, and dominated by funds.

“We’ve seen a big change in the commercial property investment market in Glasgow and Edinburgh in the past three months,” he said.

“Previously (the) target internal rates of return would have been in the region of 9% but now these have dropped to about 6%-7%.

“With the huge demand for pensions and other investment vehicles, funds are now looking closely at office property investments with net initial yields of about 5%. They have a lot of money to spend and are looking for prominent office locations to invest in in both Glasgow and Edinburgh.”

Glasgow’s largest speculative office development, the £55m Aurora on the site of Scottish Enterprise’s old headquarters, has been described as a “London quality office dropped into the heart of Glasgow”.

Some of the other developments coming to the market include the former GPO building in Glasgow known as No 1 George Square. AWG Property and HF Developments plan to redevelop it into 127,000 sq ft of prime office space.

Franborough House on Bothwell Street opposite the Aurora is owned by Rangers chairman David Murray through his property company, PPG. Murray plans to build a 183,000-sq-ft office at a cost of about £60m. Analysts do not expect him to build the new development until the Aurora has sold.

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no not to the moon, i did go to london though last week. most of the issues discussed here though are a bit too local for me to weigh into. as for expensive tastes, i hope those include cohibas and chanel sun glasses.
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