M&G Real Estate, one of the UK’s largest property investors, predicts that average rents for the UK’s regional office market will see growth accelerate to a 15-year high rate of almost four per cent in 2016.
The latest UK Outlook report, published by the leading global real estate fund manager, outlines that regional offices are benefitting from increasing occupier demand among London-based companies seeking to relocate back office functions away from the capital.
Also known as ‘North-shoring’, the trend is supported by a limited development pipeline, further boosting rental growth across the UK’s major regional cities.
Recent examples of the trend include Deutsche Bank and HSBC moving to Birmingham, and Freshfields Bruckhaus Deringer and Talk Talk moving to Manchester.
Richard Gwilliam, Head of Property Research, M&G Real Estate comments: “With little construction of high quality office spaces taking place and occupier confidence on the rise, we anticipate the UK regions will enjoy substantial rental growth. This further strengthens the case for the Northern Powerhouse, no longer a glib catchphrase but a real context that is now attracting significant investor appetite.
“While the industry is likely to see further yield compression in 2016, we anticipate yield stabilisation and so this unprecedented rental growth is set to take over as the primary driver of capital growth in the UK property market. For long-term income driven investors, the fundamentals are in place now to make the case for long-term investment commitments in the regions.”
The report also highlights the anticipated long-awaited rise in rents for retail as consumers take advantage of rising real incomes and retailers feel more able to adapt to and absorb the sector’s structural change.
Additionally, the industrial sector’s recent rates of growth will continue. Rents are now rising by around six per cent per annum in London and the South East, and 3.5 per cent in the regional markets. This reflects simultaneously limited availability of space and strong occupier demand, particularly from high-profile online retailers such as Amazon and Ocado as well as discounters.