Edinburgh and Manchester are ranked among the top Commercial Property hotspots outside of London by new research.

Edinburgh and Manchester are ranked among the top commercial Property hotspots outside of London by new research. The study by law firm Morton Fraser shows that the Scottish capital is the most attractive location for investment outside of the UK city, topping a table of Top 10 markets.

Bristol is ranked second, with Manchester in third place.
All three cities are the most appealing regional locations for investors – more found them attractive propositions than those who did not. The remaining seven cities, though, did not appeal to the majority of investors, with more rating them an unattractive investment proposition rather than an appealing one.

Aberdeen, for example, is rated the least attractive location for property investors, after its energy-dependent economy has been hit by falling oil prices, leading to thousands of job losses and the contraction of the oil and gas industry.

David Stewart, commercial real estate partner at Morton Fraser, says: “The three ‘net positive’ cities in our league table have demonstrated real economic resilience since the recession. Their success in protecting inward investment, attracting business and talent, and developing infrastructure means property investors can more easily envisage long-term gains.

According to Morton Fraser, Leeds, Cardiff and Glasgow will all expect to move into a net positive investment score in the coming year, after at least 30 per Cent of investors felt they were attractive locations. They have also negotiated city region deals with the UK Government collectively worth at least £3bn.

Indeed, Stewart forecasts that city region devolution will play “a key role in ensuring investors see regional locations as positive income-generating opportunities”.

“Regional commercial property investment has a lower upfront capital cost but can often return higher yields and longer tenant leases,” he adds, “improving income security. However, those benefits are outweighed by perceived economic risks in most regional cities by potential investors.”

The research follows a study from CBRE that highlighted the growing popularity of regional cities among investors, with Manchester attracting £8.2 billion of commercial property deals in the past decade.

Investment in Manchester commercial property tops £8bn

13th January 2016

Investment in the UK’s regional commercial property markets has totalled £44 billion in the last 10 years, according to CBRE. Regional cities have increasingly become a target among investors, as they seek markets away from the capital, which has become more and more expensive. In total, the regions beyond London and the South East now account for almost 60 per cent of all UK commercial real estate transactions.

Manchester is the most popular target market, attracting £8.2 billion of commercial property investment in the past decade – ahead of Birmingham (£6.5bn) and Glasgow (£5.3bn). Manchester also performed better than Birmingham on a per capita basis, although two other large cities (Glasgow and Leeds) and four smaller cities (Aberdeen, Edinburgh, Cardiff, and Bristol) perform better in this per capita ranking than both.

The report identifies the key factors behind a city’s success – civic leadership, talent in growing sectors, quality of life and infrastructure – and softer indicators, including the number of 5 star hotels or Michelin star restaurants.

The findings show that investors have diversified their property holdings as part of the recent economic recovery with emerging investment sectors such as healthcare and student housing increasing their share of the market. Prior to the financial crisis, these assets accounted for 3 per cent of investment; this has trebled to around 10 per cent of total investment volumes.

The figures arrives as a separate CBRE study found that total return on investment from UK commercial property reached 14 per cent at the end of 2015 – below the peak of 19.7 per cent recorded in 2014 but above 2013’s 11.5 per cent. December delivered returns of 1.1 per cent for the month.

Overall, rental values across all property types grew by 4 per cent in 2015, the highest growth rate since the recession. Rental value growth remained stable in December at 0.4 per cent, where it has been since September, ending the year significantly higher than the 0.2 per cent recorded in January 2015 and ahead of the 0.3 per cent monthly average for 2015.

Capital value growth across all commercial property sectors and regions also remained flat in December at 0.7 per cent, having been below 1 per cent since January 2015.

Miles Gibson, Head of UK Research CBRE, comments: “An urgency to close deals in the last month of the year meant that total returns spiked quite significantly in December 2013 and December 2014. This simply didn’t happen in 2015. Nevertheless rental and capital values both performed well for investors in 2015, continuing the upward trend seen in the last years.”

Over the whole of 2015, capital values grew by 8.3 per cent, behind the 12.9 per cent for 2014. The sector with the strongest capital value appreciation in 2015 was Offices at 12.8 per cent, followed closely by the Industrial sector at 11.2 per cent.