Wix / May 4th, 2015
Wix reports: Figures from global commercial real estate data and analytics firm Real Capital Analytics (RCA) indicate that capital flows into UK regional real estate (£28.3bn) exceed those in London (£27.5bn) for the first time since the financial crisis. “It’s a definite reversal of the trend that we’ve seen since the end of the financial crisis,” says Tom Leahy, RCA’s Director of Market Analysis EMEA. “I don’t think it necessarily shows that London is becoming less favourable, especially among certain groups of investors, but people have seen the [regional] economic recovery feeding through into the property occupier markets and tl1at’s encouraging them to invest.”
Leahy also points as much as £17bn of the £28.26bn regional total came from domestic investors, clearly “on the hunt” for income. RCA’s figures also show a rise in the long-term average of regional UK yields. “Everyone in property knows what’s happened to pricing in London,” continues Leahy. “But if you’re a value-driven investor, you’d look at London and think there’s not much value left in that market versus maybe what you can get elsewhere.”
Cross-border capital accounted for the remaining £11bn, and as RCA confirms, nine out of the top 15 individual regional investors were from overseas, including Oaktree Capital Management, Goldman Sachs and Lone Star. RCA’s data revealed a regional property yield shift of about 1% over the past year, but nothing to stop the flow of private equity.
Leahy postulates that all indicators point to a continuing capital flow into secondary cities like Manchester, Birmingham, Leeds, Bristol, Edinburgh and Glasgow. “If you look over a 20-year time span, rents in a lot of the regional markets are back where they were in 1990,” he says.
“There hasn’t been any real growth for some time but certainly in the bigger markets, investors are quite optimistic about what’s going to happen to rents. Because there has not been a development boom there hasn’t been a lot of new stock come on to those markets for quite a while. So, those developers who did start to develop a couple of years ago are now sitting relatively pretty.”