Overseas investors have been increasingly active in the north west of England during 2016, accounting for 46 per cent of all transactions with deals totalling £1.1 billion. This compares to 25 per cent of deals across the whole of last year and is above the long-term annual average of 19 per cent.
With the result of the EU referendum now firmly sinking in, is this likely to change? Times of economic or political uncertainty have traditionally seen overseas investors turn their focus to London’s relatively stable commercial property market, but a number of high-profile transactions have completed in the north since the vote, suggesting that appetite remains strong. A notable example is German investment manager Deka Immobilien’s purchase of One St Peter’s Square (pictured above) in Manchester for £164 million in August 2016.
The North West retail sector appears to have particular appeal, with non-domestic investors acquiring £381 million worth of assets so far in 2016. There is also strong appetite for Grade A offices, with £540 million worth of assets purchased by overseas investors as at end August 2016. Aside from the Deka deal, Manchester has seen a number of other major office transactions so far this year, including the £115 million acquisition of 3 and 4 Piccadilly Place by US-based Ares Management and the £85 million purchase of XYZ in Spinningfields by Germany’s Union Investment Real Estate.
So why the increase in demand? Clearly, overseas investors have recognised the structural strengths of the northern market with its large, skilled employee base lower occupational costs driving strong tenant demand and an under-supply of stock, meaning prospects for rental growth are good. They want to capitalise on all of these factors.
Geographically speaking, the North West continues to gain popularity for overseas investment. Since 2000, 3 per cent of the overseas investment into the UK has taken place in the region, yet for 2016, this has risen to 9 per cent. Although Manchester has seen the most inward investment by far of the North West’s prime cities with £3.2 billion worth of transactions since 2000, volumes have also topped £1 billion in Sheffield, Leeds and Liverpool.
The third quarter has inevitably been quieter as non-domestic investors mull over the UK’s forthcoming exit from the EU. That said, the initial impact on pricing appears to have been minimal and the decreased value of the Pound versus the Dollar and Euro only makes the UK an even more attractive target for overseas buyers. We expect transaction volumes in Manchester and the North West region to return closer to their normal levels in the final quarter of 2016, with overseas investors leading the pack.