London Competition Drives Regional Commercial Property Investment

Yields In Birmingham, Manchester Now Higher Than In City

13.01.2015

Strong competition among foreign investors in London's commercial property market is leading to greater investment in regional cities, according to Reuters.

The news agency reports that investors from China, Russia and southern Europe now view the capital's commercial and residential property as a safe haven, but this means local investors facing a "fully priced" market need to look elsewhere.

Research by Savills shows that British institutions increased their exposure to the regional office market to 46% by September 2014, a 13% year-on-year increase.

M&G Real Estate, one of the most active investors in the area, spent £320m on office space in Manchester last year, and overall more than 60% of its investments were outside London.

Yields in the regions are also climbing higher than London's: prime office space in the City returned 4.25% in the second quarter of last year, while Birmingham returned 5.25% and Manchester 5%.

Michael Haddock, Senior Research Director at CBRE, said regional investment is currently better suited to smaller, more agile players.

"Because it is harder to place large amounts in smaller cities quickly, some of the larger international investors who have large amounts to invest and limited management capacity might find them impractical," he said.

Expert Opinion
In the past six or so months, we have received instructions on investment sales to investment funds which certainly since 2008 have rarely looked outside of London.

"This has happened in the past of course, but this time the difference lies in the stock and the location which they are targeting. For instance, in Manchester, the Northern Quarter’s mixed use leisure and residential seems very popular with them, in addition to the usual suspects of new grade A offices.

"This reflects what other investment clients of ours who are based in London have sought when moving East of the City into areas such as Shoreditch - essentially trying to steal a chase on the foreign buyers who might not have the key local knowledge to know where the next “golden nugget” is going to come from."
Patrick Duffy, Partner