Overseas investments boost office markets in UK regional cities

Investment into the office market in UK cities was buoyed by overseas buyers in 2016 with international money accounting for 45% of all transactions, up 10% year on year.

Despite investment volumes falling from £3.2 billion in 2015 to £2.5 billion in 2016, principally because of political turbulence, overseas investment remained consistent at £1.1 billion, according to the latest regional office market report from international real estate firm Knight Frank.

In particular, office investment in Edinburgh surpassed expectations with volumes reaching £445 million, the highest annual level achieved since 2006. Notably, overseas investment represented 70% of this total with German buyers the most active.

Edinburgh was one of only three UK regional cities to record investment levels above that of 2015, along with Bristol and Sheffield but the continued strength of the leasing market has supported investor interest in the regions.

Despite being less than the previous year, 2016 occupier activity held firm with the level of combined take-up across the regional centres finishing well above the long term average.

The report says it is notable that overall take-up in Manchester reached 1.3 million square feet for the third consecutive year, with the 81,000 square feet letting to law firm Freshfields Bruckhaus Deringer the largest inward investment deal on record for the city.

The highest year on year growth however, was in Bristol where take-up reached 783,000 square feet, a 60% increase on 2015.

It explains that each of the regional cities is now evolving through great innovation and development, together with both public and private investment. International buyers still view regional cities as business hubs with the potential for significant value growth.

The influx of overseas money across many regional markets can be attributed not only to the opportunity they saw in the devaluation of the pound but also to the significant demand from occupiers, which has encouraged refurbishment and development of new office space.

‘Importantly, there is now political will to empower the regional cities, something that arguably was missing in the past. The built environment is a fundamental component of this change agenda, one that is creating the right conditions for innovation and growth,’ said Alastair Graham-Campbell, head of the regions at Knight Frank.

‘Regional UK offices remain an attractive property investment offer for overseas investors attracted by the weak pound, the sophisticated property market and relative political stability. Not only are yields in excess of those in London and the South East but investors are benefitting from a substantial return on their equity from seeking prudent bank lending at competitive rates,’ he added.