Regional UK office market in demand

The majority of focus in the UK property market seems to falls on domestic investments with many people are unaware of the underlying movement in the UK office market. However, a report by Knight Frank has highlighted the recent strength in regional office investment with some of the powerhouses outside of London beginning to show their strength. So, where is the demand and how does the future look for the UK regional office property market?

Current hotspots

Manchester and Birmingham have been very active over the last quarter rising to the top of the investment league for the first quarter of 2015. This will not surprise those who have a keen eye for office investment across the UK as these two particular cities have strong underlying economies. Despite the fact that some experts believe these particular cities are now “fully valued” with regards to office property valuations we shall see what the trend chasers think over the next few months.

Investment yield on office property

There is a distinct spread between the more popular cities of the UK such as Manchester, with a yield of 5%, and Sheffield which is struggling and currently offers a yield of around 6.75%. This 175 bps spread is the highest we have seen for 10 years and would seem to suggest that office property investors are perhaps a little choosier than they have been in the past?

It is very easy to throw about figures, compare investment yields but the fact is that local economies and decentralisation of government spending is and will continue to have an impact. This is something which has emerged over the last few months, ahead of the general election, amid signs that the centralisation of all UK public services in and around London was not going down well with those in the North, Midlands and South. So, will we see a change in investment patterns across the UK office property market?

General rental trends strengthen

Despite the fact that some areas of the UK are proving more popular than others, the general trend is most certainly upwards. In many ways this is a follow on from the 2008 property crash and economic turmoil which led to many companies mothballing their office property developments. Some of these developments have since come back online but it will take some time to “catch-up” and therefore in some ways the ongoing increase in office property prices and reduction in yields is a reflection of this situation.

Will the market be flooded with office developments?

As we touched on above, many office property developments were mothballed after the 2008 US led property crash. This had a major impact upon the worldwide economy and while we will see an increase in office property developments in the short to medium term many developers are still licking their wounds.

The last decade has seen exuberance to the point of madness with people paying crazy prices for property developments to the depths of despair post the 2008 US sub-prime mortgage market crash. Many investors and developers have been scarred by this experience and will need to see signs of a stable long-term UK economy before they commit significant investment funding.