Overseas investment in UK regional offices on the up

Manchester, UK

Overseas investment in the UK’s regional office markets is climbing at the start of 2017.

In the month that sees the UK begin the process of existing the European Union, international investors show no sign of exiting the country, according to new research from Knight Frank.

Investment transactions in the UK’s office market increased in the final quarter of 2016, following a pause in activity around the referendum last year. The UK’s office investment market, particularly in regional cities, has enjoyed a positive start to 2017, with foreign investors “actively searching” for regional opportunities.

This is primarily fuelled by upbeat economic data and active occupiers, and Knight Frank forecasts the momentum to “continue through the year”.

“A renaissance is firmly underway,” says Darren Mansfield, Knight Frank Associate. “Each of our regional cities is evolving at pace through both public and private investment. Amenity and infrastructure now underpin each development plan, recognising the shift in employer focus toward offering a lifestyle to attract and retain talent.”

Indeed, occupier activity over each of the past three years has been above the longterm trend. This statistic is testament to progress, illustrating not only the growth ambitions of local companies, but also the attraction to occupiers from further afield. Manchester, for example, has seen inward investment account for around 15 per cent of take-up in 2016, a trend that is increasingly being witnessed across regional cities.

“We must recognise that a number of UK wide factors threaten to undermine growth and confidence. The disruptive influence of Brexit is foremost, although reassuringly, the forecasts of economic disaster post the EU vote have for now, been buried,” says Mansfield. “A smooth negotiation process will be definitive, but we can be sure that the political arena will again dominate in 2017.”

However, there is now the “political will to empower the regional cities”, which is “creating the right conditions for innovation and growth”.

Knight Frank forecasts UK institutions will be a key buyer group alongside overseas buyers who will be looking for regional UK opportunities in their search for yield, “further encouraged by the recent weakness of sterling”.

 

Overseas investors swoop on Manchester office market

8th September 2016

Overseas investors are swooping in on Manchester’s office market this year.

Transaction volumes in the city’s office investment market totalled £304 million in H1 2016, 8 per cent up on the same period in 2015 and 3 per cent up on the five-year first-half average of £295 million, according to Savills.

In H1 2016, overseas investors showed “particularly strong demand” for Manchester office assets, says Savills, accounting for 70 per cent of all transactions with deals worth £212 million – “well above” the long-term first-half average of 37 per cent.

Peter Mallinder, investment director at Savills, comments: “The outcome of the EU referendum is now sinking in and some office transactions will be inevitably be delayed or renegotiated as investors take stock. However, we expect the increased depth of overseas interest in Manchester to help stabilise the market, as foreign buyers take advantage of the weaker sterling and reduced competition.”

The optimism arrives after six months without many trophy letting deals: H1 office take-up reached 415,257 sq ft (38,577 sq m). Indeed, it was only in August 2016 that the city saw the completion of Deka Immobilien’s purchase of One St Peter’s Square, notes Property Week, and law firm Freshfields Bruckhaus Deringer’s confirmation of an 80,000 sq ft letting.

Deka bought One St Peter’s Square from Argent and the Greater Manchester Property Venture Fund for £164m.

Nonetheless, a number of other key leasing deals, including to Swinton Insurance at 101 Embankment, are expected to complete in the third quarter, with Savills forecasting take-up for the full year to reach 1 million sq ft, slightly down on 1.3 million sq ft in 2015. However, Richard Lowe, office agency director at Savills, notes that the city’s office take-up levels have been “significantly in excess of the long-term average in recent years”.

“Activity levels since the referendum result are encouraging,” he adds. “Headline Grade A rents have risen from £28.50 per sq ft in 2010 to £33.50 per sq ft in the first half of 2016, and with just over one year’s supply of space on the market we expect this upward pressure to continue in the short term at least.”

 

 

Record amount invested in Bristol offices

4th August 2016

Investment in Bristol offices has reached a record level this year.

The city was ranked the second commercial property hotspot outside of London earlier this year and now, new figures from Savills demonstrate why. The data shows that investment climbed to £237 million in the first half of the year, 140 per cent above the long-term half year average of £98.7 million. Domestic UK investors accounted for £82 million of the deals – 35 per cent of the total – also above their long-term average of £49 million.

Key deals between January and June 2016 included the purchase of Bridgewater House, near Temple Meads Station, by a private investor for £56 million, representing a yield of 5.35 per cent. Prime yields for the market stand at 5.25 per cent.

Andrew Main, director of investment at Savills Bristol, says: “In the first half of 2016 alone we have seen more investment in Bristol offices than during the whole of 2014. Bristol is seen as a solid choice by investors; tenants continue to see it as a very attractive location, whilst decreasing availability of Grade A space means that rents are predicted to rise from their current £28.50 per sq ft to £35 by the end of the decade. We anticipate that investment volumes will remain strong through to the end of the year and beyond.”

Demand for office space in Bristol also remains high: take-up reached 381,291 sq ft (35,421 sq m) in the city centre during the first half of 2016, says Savills. This is higher than the long-term half year average of 278,000 sq ft (25,826 sq m) and the strongest first half since 2007. Savills forecasts that Bristol is on track to reach take up of 800,000 sq ft (74,320 sq m) by the end of 2016, well above the five year average of 533,000 sq ft (49,515 sq m).

Photo: Harshil Shah

Edinburgh and Manchester top commercial property hotspots outside of London

14th June 2016

Edinburgh and Manchester are ranked among the top commercial property hotspots outside of London by new research.

Edinburgh and Manchester are ranked among the top commercial property hotspots outside of London by new research. The study by law firm Morton Fraser shows that the Scottish capital is the most attractive location for investment outside of the UK city, topping a table of Top 10 markets.

Bristol is ranked second, with Manchester in third place. All three cities are the most appealing regional locations for investors – more found them attractive propositions than those who did not. The remaining seven cities, though, did not appeal to the majority of investors, with more rating them an unattractive investment proposition rather than an appealing one.

Aberdeen, for example, is rated the least attractive location for property investors, after its energy-dependent economy has been hit by falling oil prices, leading to thousands of job losses and the contraction of the oil and gas industry.

David Stewart, commercial real estate partner at Morton Fraser, says: “The three ‘net positive’ cities in our league table have demonstrated real economic resilience since the recession. Their success in protecting inward investment, attracting business and talent, and developing infrastructure means property investors can more easily envisage long-term gains.

According to Morton Fraser, Leeds, Cardiff and Glasgow will all expect to move into a net positive investment score in the coming year, after at least 30 per cent of investors felt they were attractive locations. They have also negotiated city region deals with the UK Government collectively worth at least £3bn.

Indeed, Stewart forecasts that city region devolution will play “a key role in ensuring investors see regional locations as positive income-generating opportunities”.

“Regional commercial property investment has a lower upfront capital cost but can often return higher yields and longer tenant leases,” he adds, “improving income security. However, those benefits are outweighed by perceived economic risks in most regional cities by potential investors.”

The research follows a study from CBRE that highlighted the growing popularity of regional cities among investors, with Manchester attracting £8.2 billion of commercial property deals in the past decade.

Investment in Manchester commercial property tops £8bn

13th January 2016

Investment in the UK’s regional commercial property markets has totalled £44 billion in the last 10 years, according to CBRE. Regional cities have increasingly become a target among investors, as they seek markets away from the capital, which has become more and more expensive. In total, the regions beyond London and the South East now account for almost 60 per cent of all UK commercial real estate transactions.

Manchester is the most popular target market, attracting £8.2 billion of commercial property investment in the past decade – ahead of Birmingham (£6.5bn) and Glasgow (£5.3bn). Manchester also performed better than Birmingham on a per capita basis, although two other large cities (Glasgow and Leeds) and four smaller cities (Aberdeen, Edinburgh, Cardiff, and Bristol) perform better in this per capita ranking than both.

The report identifies the key factors behind a city’s success – civic leadership, talent in growing sectors, quality of life and infrastructure – and softer indicators, including the number of 5 star hotels or Michelin star restaurants.

The findings show that investors have diversified their property holdings as part of the recent economic recovery with emerging investment sectors such as healthcare and student housing increasing their share of the market. Prior to the financial crisis, these assets accounted for 3 per cent of investment; this has trebled to around 10 per cent of total investment volumes.

The figures arrives as a separate CBRE study found that total return on investment from UK commercial property reached 14 per cent at the end of 2015 – below the peak of 19.7 per cent recorded in 2014 but above 2013’s 11.5 per cent. December delivered returns of 1.1 per cent for the month.

Overall, rental values across all property types grew by 4 per cent in 2015, the highest growth rate since the recession. Rental value growth remained stable in December at 0.4 per cent, where it has been since September, ending the year significantly higher than the 0.2 per cent recorded in January 2015 and ahead of the 0.3 per cent monthly average for 2015.

Capital value growth across all commercial property sectors and regions also remained flat in December at 0.7 per cent, having been below 1 per cent since January 2015.

Miles Gibson, Head of UK Research CBRE, comments: “An urgency to close deals in the last month of the year meant that total returns spiked quite significantly in December 2013 and December 2014. This simply didn’t happen in 2015. Nevertheless rental and capital values both performed well for investors in 2015, continuing the upward trend seen in the last years.”

Over the whole of 2015, capital values grew by 8.3 per cent, behind the 12.9 per cent for 2014. The sector with the strongest capital value appreciation in 2015 was Offices at 12.8 per cent, followed closely by the Industrial sector at 11.2 per cent.

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