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Property investors flock to Birmingham

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Investor appetite for regional office stock strengthened during the first quarter of 2015, with Birmingham the second most popular destination for investors outside of London, according to Knight Frank’s quarterly Regional Office Market Performance research.

During the first three months of the year, total office investment volumes reached £178 million in Birmingham, boosted by the sale of RBS’ Brindleyplace headquarters to German pension fund VGV for £131 million.  Only Manchester recorded a higher total at £182 million.

Given the weight of money targeting core regional office markets, prime yields moved down by 25 basis points across the majority of centres, wit the exception of Aberdeen where yileds moved up 50 basis points.

Birmingham and Manchester now command a premium over the UK’s other regional markets, with yields at five per cent, closely followed by Bristol and Leeds at 5.25 per cent.

Ashley Hudson, head of investment at Knight Frank in Birmingham, said: “Offices are forecast to be the lead performing sector in 2015, ahead of both retail and industrial.

“The Investment Property Forum (IPF) Consensus Forecasts show an average total return of 15.9 per cent for offices driven by rental growth and an expectation of relatively strong capital value growth.

“With offices forecast to be the lead performer we expect investor demand to remain strong. There will be further yield compression across the regional office market, driven by the substantial weight of money and shortage of good quality stock.”

According to Knight Frank’s research, regional office occupier activity tailed off during the first quarter of the year, following an exceptionally strong 2014. Take-up across the ten cities monitored as part of the research totalled 1.35 million sq ft in Q1, compared to 2.15 million sq ft in Q4 2014. However, overall take-up in Q1 was in line wit the five-year quarterly average.

In Birmingham, take-up during the first quarter was circa 140,000 sq ft.

Of the ten regional markets in the research, Birmingham has the lowest availability of grade A space at just 570,000 sq ft and currently has just one year’s supply left, based on average annual grade A take up.

Mr Hudson said: “As the supply of good quality office stock diminishes, rents are coming under increasing pressure. During the first quarter, headline rents increased to £30 per sq ft in Birmingham.

“We anticipate further rises in office rents during the remainder of the year in Birmingham and across many of the major regional cities.”

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Posted by Matt Taylor on 8 June 2015

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