Overseas commercial real estate investors are increasingly being drawn to UK regional cities, and in particular large investment opportunities, due to a lack of available prime stock in Central London, according to CBRE.
The UK recorded EUR12.4 billion worth of transactions in Q1 2014 – up five per cent on the same quarter last year.
Nearly three-quarters (74 per cent) of this total was made up of properties outside Central London – up from 61 per cent in the previous quarter and marking the highest proportion recorded since Q4 2011.
About EUR1.2 billion (GBP1 billion) worth of transactions by foreign investors took place outside Central London in Q1 2014, including nine transactions from Asian and Middle Eastern investors, five of which were greater than EUR12 million (GBP10 million). Non-European capital has increasingly spread into regional UK cities since the bottom of the market in Q2 2009 more than doubling market share from seven per cent to 18 per cent in Q1 2014.
Non-Central London investment was historically at its highest in Q1 2009 at 83 per cent of total UK investment. If this level marks the potential upside, then the rest of the UK may see significant uplift in investment throughout 2014.
Jonathan Hull, managing director, EMEA capital markets, CBRE, says: “London was targeted by a wealth of cross-regional investment at the end of last year, in particular buyers from Asia and the Middle East who were keen to acquire prime assets in one of the world's leading cities. The fierce competition has led to a shortage of available stock in Central London; therefore, investors are turning their attention to the UK’s major regional cities such as Edinburgh and Manchester. This is evident in the recent momentum of regional office investment in the UK and the corresponding yield compression.”
The European commercial real estate investment market overall started the year strongly with EUR38.9 billion in Q1 2014 – up 21 per cent on Q1 2013. This is the highest Q1 total since 2008.
However, following an exceptionally robust Q4 2013, the Q1 2014 total was well below last quarter’s EUR62.4 billion. Nearly three quarters of the entire European commercial real estate investment market is made up of the top four markets: the UK (32 per cent), Germany (25 per cent), France (nine per cent) and Sweden (seven per cent).
Spain, Ireland and Italy all saw year-on-year increases in investment activity in Q1 2014 as investors continue their climb up the risk curve. Spain has edged its way back, recording EUR988 million in turnover and taking up an increasing share of the European investment market (three per cent). Ireland (two per cent) recorded its highest quarterly total since 2006 at EUR939 million.