Overall investment down, but international cash remains stable

Overseas buyers gave a welcome boost to UK regional office investment in 2016, with international money accounting for 45% of all investment into offices across the 10 cities tracked by Knight Frank’s newest Regional Office Market Report, up from 35% in the previous year.

While overall investment volumes fell from £3.2bn in 2015 to £2.5bn in 2016 - with the finger of blame pointed squarely at political uncertainty - overseas investment remained stable at £1.1bn.

Across the 10 cities surveyed Edinburgh led the way, surpassing expectations with volumes reaching £445m, the highest annual level achieved since 2006. Overseas investment represented 70% of this total, with German buyers the most active.

The Scottish capital was one of only three UK regional cities to record investment levels above that of 2015, along with Bristol and Sheffield.

The continued strength of the leasing market supported investor interest in the regions. Despite being less than the previous year, 2016 occupier activity held firm, with the level of combined take-up across the regional centres finishing well above the long-term average.

Notably, overall take-up in Manchester reached 1.3 million ft² for the third consecutive year, with the 81,000 ft² letting to law firm Freshfields Bruckhaus Deringer being the largest inward investment deal on record for the city.

The highest year-on-year growth however, was in Bristol where take-up reached 783,000 ft², a 60% increase on 2015.

Knight Frank said each of the regional cities was evolving through innovation and development, together with both public and private investment. The influx of overseas money across many regional markets can be attributed not only to the opportunity they saw in the devaluation of the pound “but also to the significant demand from occupiers, which has encouraged refurbishment and development of new office space”.

Alastair Graham-Campbell, head of the Regions at Knight Frank, said there was now the political will to empower the regional cities, something that arguably was missing in the past.

“The built environment is a fundamental component of this change agenda, one that is creating the right conditions for innovation and growth.

“Regional UK offices remain an attractive property investment offer for overseas investors attracted by the weak pound, the sophisticated property market and relative political stability.

“Not only are yields in excess of those in London and the South East but investors are benefitting from a substantial return on their equity from seeking prudent bank lending at competitive rates.”