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Whatever happened towards the end of last summer? It was as if someone flicked a switch and bang that was it: confidence had returned to the world of commerce and suddenly a typical business’ approach to life was far more bullish. Over the course of the past six months, a number of our major clients have decided it was time to move to new premises, expand the team or even take-over and buy out other businesses. This confidence has really filtered through to the real estate investment markets.
It was questionable as to how bigger impact the recession ever did have on the London property market…. During the difficult years, foreign investment continued to plough into the safe haven of the London residential and commercial property markets and pricing has become hotter and hotter. It is fair to say that some buildings are now being purchased in the capital at levels that just do not make commercial investment sense.
The combination of London becoming an investment proposition with limited returns and the revival of genuine confidence across the UK’s business community has brought about a surge in demand for real estate investment across the regional cities.
The institutional investors (pension funds) are being attracted to the returns available in well-let stock in cities such as Leeds, Birmingham, Manchester and Edinburgh and new entrants to these markets are stimulating activity on larger and riskier projects. The private equity / opportunity funds have injected a new type of capital into the regions. These investors are seeking an investment proposition higher up the risk curve but with higher returns. The private equity / ‘opp’ funds as they are known are looking to place circa £20m equity into a deal and target IRRs in the region of 15%. This means after gearing the deal size could be somewhere in the region of £50m and could also include development projects.
The combination of the institutional and more opportunistic capital into the regions has provided an equity injection which has generated a healthy increase in transactional activity. This has come at a time when the occupational markets have vastly improved where in cities such as Manchester and Leeds, the Q1 take up figures for office space were the highest levels for a number of years. The Aberdeen property market also goes from strength to strength off the back of the oil markets.
It is great to see the regions have not stood still during the economic crisis and, despite the economic uncertainty, bold plans were still being devised during the recession. In my home city of Manchester, we are seeing what excellent leadership within a city council can bring. A second metro link crossing being built, the Ordsall Chord, will link Manchester Piccadilly with Manchester Victoria railway stations and there is much talk about the possibility of HS2. All these initiatives are fundamental to the success of a regional city and will help attract future investment from new businesses and, of course, those real estate investors seeking value outside the capital.
Will Lewis is the founder and managing director of OBI Property, a real estate advisory firm that advises international and national developers, landlords and occupiers. Will was voted in the top 50 national leasing consultants in a recent Property Week survey and is extremely active in advising occupiers on their real estate strategies and office relocations throughout the UK. Significant clients include Allied London, Henderson Global, Aviva and Slater & Gordon, Keoghs and Mills & Reeve.