14th January 2014
Commercial Property Investment rises in the regions
London is recognised as the world’s top city for commercial property investment, but we have seen a dramatic swing away from the capital in recent months. High-net worth individuals, major funds and property syndicates seeking alternative investments are now looking to commercial property in the UK regions for solid returns and a high-level of security.
The latest research from commercial property agency Knight Frank shows investment activity in the regional cities soared to a seven-year high in the latter half of 2013 as a wave of institutional money turned its back on London.
This is fuelled by savvy investors who are now looking to get more for their money and more realistic returns.
These UK investors, alongside a swathe of foreign direct investment (FDI), propelled investment turnover to £1.63bn in quarter four of last year – the strongest quarterly total since quarter three of 2007.
But why are investors looking beyond London? Put simply, prices in London have soared because overseas investors have invested heavily in the city as they look for a safe haven away from the recent economic turmoil.
CoStar’s UK Annual Investment Bulletin shows commercial property investment deals reached £52.7bn in 2013, with two-thirds of that money invested in central or Greater London.
That presents significant opportunities for UK investors who know how to make the most of the regions. With investors now looking elsewhere, the weight of money targeting the regional markets has given rise to significant price increases.
Knight Frank’s research shows yields from prime stock have hardened by c.50 to 75 base points in the past year. With the rate of yield compression easing, performance will be driven by the recovery in the occupier markets.
Take-up across the regions is growing dramatically once again and that means quality space is running out. For investors, this diminishing space means we should see improved rental growth in the coming months.
It’s a good opportunity and that is why investors are looking to the regions. They are capitalising on falling yields, rising rents and soaring occupier demand.
Direct Foreign Investment
In 2013, the combined effect of a low-interest rate environment, increasing stability in the eurozone, the continuing recovery of the UK economy and the swathes of foreign investment cash meant that demand soared for commercial property investment.
That trend will continue throughout this year. The rising demand among occupiers and the diminishing availability of quality space will ensure that investors both at home and abroad will continue to seek UK opportunities.
London will remain popular – it’s rumoured that £25bn of funds is currently chasing £1bn of available property in the capital – and that will mean prices will continue to rise for investors and occupiers alike.
But that means the momentum will be in the regions. With occupiers chasing quality space outside London and the trend for “northshoring” growing, this will trigger further rental growth, a rise in occupier demand, speculative development and the number of investment deals will continue to grow in the major regional cities.
This presents significant opportunities and the investors who seek out regional stock with the potential for active asset management will see solid, long-term returns.