Partner Article

Improving sentiment in the investment market

Knight Frank’s latest regional occupiers markets report indicates that in the first quarter of this year, the 10 regional cities when combined showed take-up was up 26% compared to the same period last year and some 20% ahead of the five year quarterly average, says Dickon Wood, Partner, Investment, Knight Frank.

Overall Grade A availability continues to diminish in the absence of concerted speculative development, with Newcastle seeing significant year-on-year falls of available stock.

In the investment market, total regional volumes outside London and the South East reached a healthy £735m in Q1, 28% above the five year quarterly average but 35% down on Q4 2013’s impressive total. Despite very strong demand for regional offices among the UK Funds, volumes are being constrained by a lack of stock on the market as landlords opt to hold rather than sell. With a limited supply of buying opportunities, the strong weight of money in the market continues to put pricing under pressure. Prime yields hardened by 25 basis points across all key markets in the first quarter of this year, taking the total shift to 75 basis points over the past 12 months.

With the majority of the regional markets now having less than two years’ worth of Grade A supply available, and this is expected to put upward pressure on headline rents over the coming 18 months.

As the recovery in the occupier markets accelerates, rental growth is expected to be one of the main drivers of investment performance this year.

And while the rate of yield compression is expected to ease, it is however likely to constitute another main driver of the sector’s performance as the revival in occupier sentiment continues.

The improvement in sentiment and values has led to a number of property owners realising profits and selling assets.

Knight Frank has been involved in two of the most high-profile deals with the sale of Time Central in Gallowgate at the end of 2013 at in excess of the £21,810,000 asking price, and more recently, the sale of the iconic, 16, 493 sq ft Fitzgeralds on Grey Street for in excess of £3,600,000.

Dickon Wood who handled the sale commented: “What these sales show is that Newcastle and the North East are now firmly back on the radar of the mainline institutional pension funds. Whilst this is good for the local property market it is also a positive reflection on the wider North East economy, which was frowned upon in the downturn over the last six years but has significantly turned a corner and is now a location and economy they are prepared to invest in.”

This was posted in Bdaily's Members' News section by Knight Frank .

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