Emperors Way, Hucknall, Nottingham

Location

Hucknall is a small market town in Nottinghamshire, in the district of Ashfield, with a rapidly expanding residential area, 7 miles to the north west of Nottingham. It has a resident population of approximately 32,000 people.

It is located close to the A611 by-pass and within 3 miles to the M1, with easy access to the Nottingham Express Transit into the centre of Nottingham.

The site of 1.75 acre is to the east of Hucknall, located on Emperors Way off Papplewick Lane. This is a new residential housing estate being developed by Barratt and Bellway, with a further 1,000 established houses to the north. There is a new primary school on the development and four others within half a mile radius.

This type of location is perfect for a ‘neighbourhood centre’ and previous schemes of this nature have been successful for investors.

Situation

LPS have agreed terms to acquire the Papplewick Lane retail development from Newcrest. Newcrest Estates Ltd are one of the UK’s leading developer of local and neighbourhood retail centres. They specialise in the development of commercial property serving new and existing residential communities.

The development was built in early 2017 and compromises of a 4,000 sq ft convenience store with three smaller retail units, one at 1,000 sq ft and two at 800 sq ft.

The main unit is let to national food retailer, The Co-operative Food Group, as the anchor tenant. There is ample car parking.

The two smaller units are to be let to Vets4Pets the national veterinary arm of Pets at Home.

The final 1000 sq ft unit is currently vacant with lots of interest. This unit is being marketed with the intention of securing more localised businesses, suited to this type neighbourhood centre.

Rational for Purchase

This is another high quality new build property, which has strong tenant quality/covenant in the form of the national Co-Operative Group.

Neighbourhood centres are proving to be popular when sited in close proximity to residential development, as UK consumers buying habits evolve from weekly/monthly ‘major shops’ at out of town sites, to more regular use of convenience stores.

This investment falls into that category and with our experience of the Co-Op as a tenant, we are happy to bring this scheme to investors, in conjunction with Newcrest Estates Ltd who are an experienced developer of such schemes. The surrounding residential development by two of the UK’s national housebuilders, provides a strong basis for this to be a positive long term purchase.

The anchor tenant gives a strong income stream which will be distributed to investors after borrowing costs and some small reserving. The further three units are likely to be popular in such a strong position and will attract more localised services, as we have seen in previous schemes.

Purchase Price

The  Total syndicated purchase price including costs (legals etc.) is £1,505,000 which will included borrowing of £525,000 provided on a non-recourse loan by NatWest Bank plc.

Initial investment will be for a minimum of £50,000, offering access to a high quality brand new investment property with a strong tenant covenant with a regular ongoing quarterly income stream and potential for capital growth over the term held.

The prospect for capital growth arises from increasing rental income by securing tenants for the vacant unit. our experience of this type of development gives us confidence that the vacant unit will let, in due course. The purchase price reflects this.

 

Emperors Way, Hucknall, Nottingham

Rental Income

With full occupancy the rental distribution will yield a circa 4.5%p.a. and potential return at circa 7%.p.a, based up sale after 5 years, assuming inflation at 3.0% p.a and capital growth commensurate with the increase in the income yield.

 

Tenant & Covenant Strength

The Co-operative Food Group Ltd is part of the Co-operative Group which has over 4,500 outlets in the UK and employees 70,000 people. The food retailer is the largest division with over 2,700 stores.

Vets4Pets are part of Pets at Home and have been helping pets since 2001 and has over 400 practices in the UK.

The remaining unit is being marketed. We anticipated market rents of £14 p.sq.ft-£15 p.sq.ft, but our appraisal has used £12 p.sq.ft. to allow for any incentives we may need to offer to secure tenants.

The tenant for the available unit is most likely to be local covenants rather than national. This will make the yield slightly higher compared to national covenants.

 

Emperors Way, Hucknall, Nottingham

Letting

The larger unit (4,000 sq ft) has been let to the Co-operative Group Food Ltd (the main operating company of the National Co-operative Group) for a period of 15 years. Rent reviews are every 5 years with RPI indexation with an increase cap maximum of 4% p.a. and minimum of 1%.

The initial rent is £55,000 p.a. which equates to £13.25 psf.

Vets4Pets (the veterinary partner to Pets at Home) has signed a lease for the two smaller units (800sq ft) for a period of 15 years with an initial 10 year unbroken term. Rent reviews will be every 5 years, revised to market rent with any increases capped at 3.5% p.a. compound.

The initial rent is £22,500 p.a which equates to £14.06 psf.

The design and architectural work has been carried out by Tew and Smith. Construction was carried out by Warwick Burt.

 

Emperors Way, Hucknall, Nottingham

The Leases

Unit 1:    Co-operative Food Group

Term:      15 Years

Rent:        £55,000 p.a

Payable: Quarterly in Advance

Reviews: Upward only every 5 years

 

Unit 2:    Vacant

 

Unit 3 and 4:    Vets 4 Pets

Term:      15 Years, with 10-year break

Rent:        £22,500 p.a

Payable: Quarterly in Advance

Reviews: Every 5 years, to market rent with increase capped at 3.5% p.a. maximum

 

 

 

Emperors Way, Hucknall, Nottingham

Borrowing

The syndicate has had indicative approval to borrow £525,000 to facilitate the purchase, at an interest rate of 2.85% over bank base rate, with a 1.5% arrangement fee. the loan term is 15 years with repayments commencing from completion.

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