Birmingham offices prove appealing to property investors
INVESTORS in the commercial office market are increasingly being drawn towards the UK regions, according to a new report by Deloitte Real Estate.
The UK Key Cities publication explores the trend that regional offices are emerging as a focus for savvy investors seeking higher returns.
Many regional cities are being bolstered by factors such as improved connectivity through large planned infrastructure projects, including the redevelopment of New Street station in Birmingham, devolution of power, and investment into the retail and leisure markets.
Anthony Duggan, head of research at Deloitte Real Estate, said: “Investors are increasingly being priced out of the London real estate market and are now seeking opportunities outside the capital.
“We’ve seen a large number of new entrants to the UK investment market cutting their teeth in London, and we now expect to see them beginning to pursue opportunities in the regions where there is the potential for higher income yields.”
However in Birmingham, over the last year, UK institutions were the prime purchasers of office space, representing almost 40% of the market, followed by property companies at 32%.
Market conditions and future changes in key cities across the UK are studied in the report, which suggests that occupational demand for offices will be mainly from the professional and administrative sectors, with active demand from the legal sectors in the regions.
Rental growth is not expected in Leeds and Birmingham, but Manchester’s lack of Grade A completions, in core areas, is predicted to drive rents up by 3%, with incentives reaching a record low, compared to expectations of remaining static in Birmingham.
There is unlikely to be any pre-letting activity in Birmingham either, as there is currently two and a half years’ of Grade A space available. Office refurbishments, rather than new construction, should be expected in Leeds, and in Birmingham the continued change of use of offices, to hotels, educational/training and residential use, is expected to be seen again this year.
Philippa Pickavance, head of agency for Deloitte Real Estate in Birmingham, said: “Although office rental levels are unlikely to increase, what is promising is that Birmingham is the key city, outside of London, where companies are investing. The figures back this up, showing that £186m was transacted in Birmingham – higher than any other regional city in 2012.
“However this has to be set in the context of the regional cities covered in our report, which saw the lowest level of investment activity since 2008, compared with a five-year high in the City of London, with £6.8bn transacted, and a further £4.3bn invested in the West End of London.
“The Birmingham figures were bolstered at the end of the year, where 40% of the investment deals came good, made up by The Cube sale to European investors Tristan Capital Partners for £37m and Baskerville House, purchased by Hermes, for £40m.
“Importantly, there are strong signals that there will be further investor interest in the regional office markets this year with both domestic and overseas investors looking outside London for their returns.”
