2015 is set to be the year that UK commercial property investors start expanding their search for value beyond London. While some believe that London will continue to lead the commercial property markets upward, the city’s status as a safe haven for foreign investors during the financial crisis has pushed prices so high that many are beginning to look elsewhere. If the growth cycle does spread further afield, investors looking for maximum ROI will need to accurately predict where the next hotspots will be.
Seeking value further afield
F&C UK Property Fund manager Guy Glover told Portfolio Adviser he’s “much more regionally focused, where there is less capital enhancement but also much less volatility”, and Ryan Hughes of Apollo Multi Asset Management argued that “the real value is in the major strategic corridors outside London, such as the M4 and M40 corridors, as well as around Birmingham, Leeds and Manchester".
“As the economic recovery ripples out from the South East”, Hughes suggests, “these markets are playing catch-up to how the London market has moved over the last two years, and there are some which are yielding 6-7.5% and have very strong tenants.”
The stats back up their assertions too. Commercial property sales have hit their highest levels since 2007/8, and Savills’ Commercial Market in Minutes report says that prime office rents in the top nine regional cities are already rising due to a 10% jump in leasing activity and a 10% fall in availability.
Some regions remain behind the trend, however. According to a new report by the Scottish Property Federation, Scottish commercial property is still ‘stuck in recovery mode’. Although with increasing foreign investment and a lower proportion of premium grade office stock than the rest of the UK, Scotland too may represent a good opportunity for investors.
Income return and rental growth
The key, as Savills’ report also emphasises, is understanding that increasing capital value will soon come to play a smaller role in commercial property returns. Instead, they say, investors must focus on income return and rental growth, making local economic growth and reliable tenants more important than ever.
For advice on how to collect commercial rent arrears, contact an advisor at Dukes today.