In 2016 overseas investors ploughed £5.8 billion into the UK’s regional commercial property market, accounting for almost one third (29 per cent) of the total investment outside London. This compares to 18 per cent in 2014 and 27 per cent in 2015.
Middle and Far Eastern buyers were particularly active outside London in 2016, spending £1.9 billion, a 90 per cent increase on the amount they spent in 2015. European investors were also active, accounting for 32 per cent of total investment in the UK regions, with German money accounting for almost half of this.
The UK is seen by overseas investors as an attractive destination due to the legal system, landlord-friendly regulations, standardised market, time zone and culture. More recently, the devaluation of sterling has made pricing attractive for investors, particularly for those whose currency is pegged to the US dollar. In 2016 UK institutional buyers were also quiet, creating a marginally less competitive marketplace for international investors.
Manchester and Cardiff were particular hotspots last year, both receiving above the national average level of investment from overseas. In Manchester 57 per cent of total turnover was attributed to overseas investors and in Cardiff 45 per cent. But Edinburgh experienced the highest level of overseas investment, driven by the multi million pound funding of the city’s St James Quarter, which took place in the fourth quarter of 2016. This deal, by Dutch pension asset manager APG, helped overseas investment into Edinburgh to account for 80 per cent of the market share.
Looking ahead, return volatility on investments in the UK regions is low when compared with other markets and we expect overseas sources to continue making purchases throughout 2017. Sub-regional cities such as Portsmouth and Bracknell are offering more yield when compared to the traditional hubs of Manchester and Birmingham.
As investors continue to search for assets with strong covenants and yields over 6 per cent we certainly expect to see continued activity in the regional markets continue throughout the year.