Investor Sentiment Warms in Regional Office Markets
United Kingdom – 16 October 2009 – Investor interest in regional UK office markets is picking up and sentiment has improved after rapid re-pricing in the past two years, according to latest research from CB Richard Ellis.
Limited investment opportunities and increasing investor appetite has resulted in pressure on regional prime office yields which looks set to continue in the short term.
CB Richard Ellis’ review of market trends in seven key regional centres has shown that there has been downward pressure on prime rents across all UK office markets, although these regions have seen only marginal falls compared to the declines recorded in the London market. Landlords have favoured improving incentive packages, such as rent free periods, which are reducing overall occupational costs.
Although the occupational market remains challenging in a number of regional markets, there is optimism that as economic conditions improve, a recovery in demand levels will ultimately follow. Looking ahead, rents in most markets are expected to bottom out in 2010 with growth expected to return in most markets by 2011.
Take-up in most regional centres has been low this year, with lease events being a key driver of activity. As the economic outlook improves and occupiers become less cautious, leasing activity is expected to pick up in 2010.
Availability continues to increase in the regional markets as developments complete and occupiers sit tight. From 2010 the development cycle is expected to wind down as developers wait for the economy to show signs of recovery and for existing stock to be absorbed.
Dr Peter Damesick, head of CBRE UK Research, said:
“With a shortage of prime stock available, the gap between prime and secondary yields has widened. There is still a shortage of debt for property investment, but the market has not seen the wave of stressed selling that some opportunistic investors were expecting.”
“The turning point for values arrived perhaps a bit sooner than expected even a few months ago but downward momentum in yields is now building and should continue to do so over the next 12 to 18 months. Prime stock will lead the rally and this could be followed by the compression of secondary yields as economic recovery becomes established and investors gradually regain their appetite for risk.”
