UK commercial property thriving, as domestic investors shy from London

Edinburgh is one city enjoying a resurgence in investment

The distinctions between the commercial property market in London and those in the rest of the UK are becoming increasingly evident, based on new data from DTZ. While the value of transactions hit a record breaking £44.7 billion last year, up nearly a third on the figures for 2012, the majority of investments into regional markets were made by domestic firms while those in London were dominated by overseas investors. Around £23 billion of the overall total was invested in property outside of the capital, a reversal of last year when more money was invested in the capital than outside it. Meanwhile foreign investors spent a total of £20bn throughout the year with the majority (£14.2 bn) invested in Central London. According to DTZ, one notable trend in the year was for UK investors to divest property in London and shift investment to other areas of the UK.

Richard Yorke, head of UK research at DTZ, said: “Domestic investors’ willingness to spend matched the improving economic picture in the UK throughout 2013, resulting in their outlay increasing by 42 per cent compared to 2012. Domestic investors are well placed to identify good opportunities across the UK and sought to exploit the record yield gap between London and the regions. Many UK firms sold London assets to fund their investment activity outside the capital, selling ‘high’ in London and buying ‘low’ in the regions.”

Foreign investors spent £20bn in 2013. Most of this – £14.2bn – was concentrated in Central London as overseas investors continued to seek prime assets, often secured off-market. Asian investors continued to be the biggest foreign buyers of property in 2013, acquiring about £4.6bn, mostly in Central London. Conversely, domestic players were net sellers as they disposed of £28.7bn of property against £24.3bn of purchases, capitalising on demand for prime assets while seeking comparative value in the regions.

Jason Winfield, Head of the UK Investment Agency team at DTZ, said: “There is undoubted momentum in the market. We estimate there is currently around £20bn of additional international capital seeking opportunities in London alone. With the economic environment improving, we expect transaction levels in 2014 to match last year’s total. “Investors did well in 2013 pursuing value in the regions but the weight of investment is pushing down yields and leading to lower expected returns so the window of opportunity is closing. We expect this to affect the relative attractiveness of UK markets compared to others which should ultimately result in reduced investor interest and slightly lower volumes in 2015.”