There is currently a positive outlook within the regional markets, with a good economic picture to back this up. In general the property market had good 2013 with a slightly higher number of deals done outside London. Lenders and funds are increasingly looking at the regions as a target for their investment strategy.

There are very high expectations for total returns in 2014, with forecasts at an average of 16% (Savills holds a more conservative at just below 14%). Some asset allocators believe that property is currently the most attractive asset class and could remain so for the next two years.

Prime equivalent yields have hardened in all sectors over the past 12 months with downward pressure on a number of sectors. This yield hardening has been evidenced by a collection of key regional office transactions summarised as follows;

Union Investments acquired One Snowhill, Birmingham which struggled to get to 7% in early 2013, but subsequently achieved equivalent yield of 6.1%, with a good depth of market.

SWIP have recently acquired Sunlight House, Manchester for £34.5m, way in excess of asking price of £28.5m and reflecting a net initial yield in the order of 6.50%.

BBC Pension Scheme reportedly purchased Time Central in Newcastle for £24.7m reflecting a net initial yield of 6.2%.

There is downward pressure on yields to reflect the anticipated rental growth and continued levels of office take-up. Correspondingly yields have moved dramatically since March 2013, but the key regional cities still look like good value when compared with London and the South East. Investor appetite for regional offices is increasing and investors are looking more closely at the regions as available space reduces and limited speculative space is being developed.

Regional markets have however recovered more slowly than London, which is to be expected and Investment volumes are also increasing but the proportion that is outside London remains low.

Speculative funding is still very difficult to secure, but we will see some funding of part pre-let schemes as stock levels remain scarce and occupational demand continues to improve.

Taken from
Spotlight: Regional Office Market Report - April 2014