Nabarro has advised Hammerson plc (“Hammerson”) on the acquisition of the new Grand Central shopping centre in Birmingham for £335 million from Birmingham City Council. Eversheds advised the developer and seller, a joint venture between Birmingham City Council and Network Rail on the development, pre-let and sale of Grand Central. In addition, Hammerson is in advanced discussions with an existing joint venture partner about entering into a 50:50 joint venture for the future ownership of Grand Central.
Grand Central, which opened in September 2015, provides 435,000 sq ft of high-quality prime retail space, anchored by a 250,000 sq ft John Lewis department store. It was developed by the Council and Network Rail as part of the £750 million New Street Station regeneration project.
The retail is close to fully let (96% occupancy) with topped-up annual net rental income of £13.9 million. The current weighted average unexpired lease term to break is 10.4 years. Based on the price paid for the retail space the acquisition represents a net initial yield of 4.0%, an equivalent yield of 4.7% and a reversionary yield of 4.9%. The expected 5-year IRR is 7-8%.
With growing demand for retail space in prime UK shopping centres and the lower average prime Zone A rents in Grand Central compared to average prime Zone A rents in the city there is potential for strong rental growth at the centre, which would further increase the reversionary potential.
The acquisition supports Hammerson’s long term commitment to investment in Birmingham as shown by Hammerson’s success at Bullring. According to latest ONS data, household disposable income growth in the West Midlands is the fastest in the UK with Birmingham growing at 3.5% per annum. Significant public sector infrastructure investment in Birmingham, including the future HS2, has supported a surge in business investment and a record level of office take-up as an increasing number of international firms choose to locate in Birmingham.
Hammerson has acquired a 150 year head lease on the centre and the freeholder is Network Rail. As part of the transaction Hammerson has also acquired Ladywood House, a 95,000 sq ft vacant office building adjoining Grand Central with a value of £10 million.
Leading the Nabarro team was Real Estate partner Simon Staite, who was assisted by senior associates Sergio Vella, Shalini Nilaweera and associate Irfaan Khaliq. Construction partner Penny Moore, Planning partner Christopher Stanwell assisted by associate Edward Eisdell Moore, Intellectual Property partner Louise Gellman and associate Anna Raggett and Infrastructure, Construction & Energy associate Camilla Bolton were also involved in the transaction.
Real Estate partner at Nabarro, Simon Staite said:
"It is great to work with Hammerson on another important transaction for them, as we already advise on some of their other major investments such as Leeds, Brent Cross and Southampton. Investment activity is increasing in Birmingham thanks to key infrastructure improvements, and the development of the striking Grand Central and the recently refurbished New Street station are two major examples. Anyone who uses the station cannot fail but to be impressed by the huge improvements there and, by sitting on top of the station, Grand Central is part of a fantastic example of what regeneration can bring.”
The Eversheds team were first engaged on the New Street Regeneration project in 2010 and have subsequently advised on the development of Grand Central, pre-let of the department store to John Lewis, pre-let of the retail and restaurants and, most recently, the sale to Hammerson. The team was led by real estate sector head Gurjit Atwal, assisted by Principal Associates Ian Owen and Richard Hartigan, Associates Thomas White and Duncan Williams and paralegal Daniel Jones.
Real estate sector head at Eversheds, Gurjit Atwal commented:
“The redevelopment of New Street Station has long been mooted, and so it’s great to finally see the vision become a reality, giving the city a first class impression to both visitors and commuters. Anyone who visited the old Pallasades will be impressed by its magnificent replacement, Grand Central, which compliments the adjoining Bullring. Birmingham’s urban renaissance continues apace, and we are hugely proud of our role in that.”
Stuart Kirkwood, Development Director at Network Rail commented:
“Grand Central has been one of the most complex urban regeneration projects in Britain, transforming New Street station and creating an award winning shopping centre above, anchored by the largest John Lewis store outside London. The partnership between Birmingham City Council and Network Rail has been extremely successful resulting in a tangible improvement in the perception and profile of the City.”
Peter Jones, Director of Property at Birmingham City Council commented:
“The refurbishment of New Street Station and the creation of the Grand Central Shopping Centre above the station is a flagship project which Birmingham City Council committed to at the highest political level as fundamental to the future development of the city – that is how important it is to us. We have worked with our partners Network Rail and our consultant team for nearly 10 years to achieve a successful project.”
David Atkins, CEO of Hammerson, said:
“The acquisition of Grand Central, a highly-prized trophy asset in the UK’s second city, is fully aligned with Hammerson’s strategy of owning top-performing retail destinations in prime locations, as demonstrated by our recent transactions in Ireland and growing exposure to European Premium Outlets. By deploying our expertise from Bullring, as well as other shopping centres around the UK, Hammerson is well placed to further enhance the consumer offer in Birmingham and achieve high returns through skilful management of Grand Central. We are strong supporters of the future of Birmingham and this acquisition provides us with additional exposure to the city’s fast growing economy.”
Hammerson was advised by CBRE and Birmingham City Council was advised by Cushman & Wakefield.
