The main driver for the resurgence of investment activity has been put down to the significant increase in fund receipts since the summer of 2013, according to the latest regional offices report from Knight Frank.
It points out that with clear signs of that conditions are improving in the occupier markets, investors of all types are being attracted by the perceived better value offered by the regions compared with London and the South East.
And the weight of money targeting the regional markets has given rise to significant price increases. Yields for prime stock have hardened by around 50 to 75 bps since the start of 2013, although it’s on going scarcity means that pricing remains largely guided by sentiment. One notable exception is Aberdeen, where a number of prominent deals for prime assets boosted investment to a record annual total of £250 million in 2013.
The report explains that 2013 take up across the 10 regional cities combined reached its highest level since 2008 and was 4% above the 10 year annual average, reflecting improving occupier sentiment during the past 12 months.
While Bristol, Newcastle and Glasgow all enjoyed their best year of take up since 2008, Leeds had an outstanding year, with take up reaching a record high of 789,530 square feet, or 58% above its 10 year annual average.
Glasgow was the stand-out performer in the final quarter of 2013 with take up of 367,879 square feet. This was boosted by Scottish Power’s substantial 220,000 square feet pre-let of its new HQ building on Vincent Street, by far the largest transaction seen across the 10 regional cities during 2013.
‘With occupier confidence improving and developers remaining wary of undertaking speculative development, the falling availability of Grade A supply is now a key theme across the regional markets,’ said David Porter, Knight Frank partner, leasing and development.
‘Overall, Grade A supply has more than halved from its peak in 2009. The situation is arguably most acute in Leeds, although supply in Birmingham and Manchester is also under pressure in view of the high number of lease events in the pipeline,’ he added.
According to Henrie Westlake, partner, investment team, with rates of yield compression easing, performance will be driven more by the recovery in the occupier markets. ‘The tight levels of Grade A supply now evident across many cities have enhanced the prospects for rental growth over the next 12 to 36 months,’ he said.
‘We anticipate that investors will capitalise on this, focusing on stock offering potential for active asset management, while the definition of good secondary is expected to broaden as investors increasingly seek value add opportunities,’ he added.
