MoD's £50m leaseback deal could
spark property boom in Glasgow

By Steven Vass

THE Ministry of Defence is selling its Glasgow administration office in a leaseback deal likely to be worth around £50 million, the Sunday Herald can reveal.

Kentigern House, in the Broomielaw district, whose staff handle a variety of payroll and personnel work, is earmarked to be sold to whichever investor can see beyond the "brutalist" 1970s architecture and agree to a 20-year lease with the defence department.

It comes as the city's six-storey 151 West George Street block, which has the Blue Dog and Lloyds bars at ground level and offices above, has received an offer from a UK pension fund worth in excess of £16m.

Taken together, the two prospective deals are being taken as a sign that Glasgow is keeping pace with the revival of major commercial property deals that has been evident in Edinburgh in recent weeks.

David Hunter, of property consultancy Hunter Advisers, said the deals showed that there was life in the Glasgow commercial property market.

He said: "There is a huge amount of money waiting to get into the UK property market. A lot of it is opportunity fund money, which is demanding returns in the high teens or even 20%, although it's not clear whether the pricing of investments would accommodate that kind of level.

"But also, with property prices having fallen by as much as 50%, institutions are recognising that there is value in the market. If you have got a ready property to sell on a reasonable income stream, there will be a market for it. In this respect, central London offices have been active for more than the last six months."

The latter category of institutional investors are generally looking for stable long-term leasing investments with reliable tenants. The MoD would fit this bill in the same way as Edinburgh Council, which the Sunday Herald recently revealed had rebuffed a £110m offer for its Waverley House headquarters. In a similar vein, Crown Estate sold Bank of Scotland corporate headquarters New Uberior House in Edinburgh to Germany's Invesco for £55.7m.

(Abridged)