The UK's regional property market is showing signs of
improvement following years of poor performance.

As the economy recovers from the recession, London, which was
initially seen as a safe haven for investors during these turbulent
times, is overheating, with prices increasing and returns dropping
off.

Value-conscious investors have looked to regional markets for
better yield returns, which move inversely with prices:

"Overseas money has been pouring into London for several years,"
says Hugh White, head of national investment at BNP Paribas Real
Estate.

"Pricing [of yields] has now crunched down to such a level that
investors are being forced to consider other options."

Savills say that last year, average commercial yields outside
London were 8.96 per cent, well above those in the capital. Their
research shows that retail and industrial sectors were the most
popular subsectors, with offices following behind.

James Gulliford, joint head of UK investment at Savills, says
clients are trying to gazump each other in a rush to secure deals.
This recovery began with investors seeking out opportunistic deals
from distressed owners who needed to find buyers quickly at a cut
price. Buyers have since moved into lower quality properties with
higher levels of risk and opportunities for refurbishment and
re-sale.

"The momentum has been there for six months or so, and it is
just coming through into the deals that are now being reported,"
said Mr. Gulliford.

Big investors are still making large-scale investments, with UK
institutions generating 39 per cent of deals, particularly into
high-yielding industrial properties, with overseas buyers being
responsible for a quarter of transactions, a third of them being
from Asia and 20 per cent from the Middle East. This includes
Malaysia's Lembanga Tabung Haji, which purchased Unilver's HQ in
Leatherhead, Surrey, for £76m in December.

Regionally, South East England was responsible for the largest
level of investment, according to CBRE's data, with Scotland a good
amount too.

James Gulliford argues that as the economy improves, we will see
more and more speculative developments appearing, with investors
keen to provide expanding occupiers with new premises options.

 

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