While London has been the epicentre of a UK commercial property boom over the past two years, with yields compressing the search for value has shifted elsewhere.
“A lot of the value in London, particularly central, has gone,” said Ryan Hughes, fund manager at Apollo Multi Asset Management. “There have been a lot of foreign buyers moving into the market over the past couple of years, which has driven yields right down.”
Guy Glover, manager of F&C UK Property, added: “While we do have some London investments, we are much more regionally-focused, where there is less capital enhancement but also much less volatility. About 85-90% of the portfolio’s income comes from outside London.”
Hughes still sees potential in the South East, stemming from increasing demand for rental space.
He said: “For a number of years there has been a distinct supply shortage in new, high-quality commercial property – particularly in the South East, where demand is picking up.
“As the UK economy recovers, companies are looking to expand or relocate to the UK and are struggling to find the type of property that they want, which is driving up rents and therefore the value of existing property.”
Northern soul
However, it is along the routes out of London and in the so-called ‘northern powerhouse’ locales that he is most positive.
“The real value is in the major strategic corridors outside London, such as the M4 and M40 corridors, as well as around Birmingham, Leeds and Manchester,” said Hughes. “As the economic recovery ripples out from the South East these markets are playing catch-up to how the London market has moved over the last two years, and there are some which are yielding 6-7.5% and have very strong tenants.”
While Glover agrees that prospects are bright on a regional view – to the extent that rents could increase by up to 22% – he takes a more individual asset-orientated approach.
