The UK’s regional office investment market experienced a slow start at the beginning of the year but investor appetite strengthened, according to the latest analysis of this market.
Indeed, turnover in the investment market reached £1.48 billion in the first quarter of 2015, s almost double the turnover during the same period last year, and 5% higher than the previous quarter and the highest single quarter since the end of 2006.
The regional office market report from Knight Frank also shows that Birmingham and Manchester proved to be the most popular destination for investors in the first quarter of 2015 with two major transactions of £131 million and £92 million.
The report points out that given the substantial weight of money targeting regional offices, and following further yield compression both Birmingham and Manchester now command a premium over the UK’s other core markets, at 5%.
These cities are closely followed by Bristol and Leeds, at 5.25%. At the other end of the spectrum prime office yields in Sheffield moved up 50 bps to 6.75% in the first quarter. This gives a 175 bps spread of prime yields, which is the largest seen in over 10 years since the fourth quarter of 2003.
However the report also points out that prime headline rents remain under upward pressure. Two markets saw headline rents increase during the first quarter, with Birmingham rising to £30.50 per square foot and Leeds to £26 per square foot.
The firm anticipates further rises in office rents during the remainder of the year and given current named requirements of 4.58 million square feet, which is the highest in five years, it expects to see higher levels of occupational demand in the second quarter back above the five year average.
‘We could potentially be heading towards a perfect storm of improving occupational markets and sustained capital markets, which hopefully will trigger new developments .With the growth of PRS also, this will be provide a major boost to regeneration schemes,’ said Stephen Hodgson, head of regional offices, Knight Frank.
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Source: Property News Spain