Still time for prime: meanwhile, regional opportunities beckon – Savills
The increasing ‘noise’ about Grade B property, core plus and value add is yet to translated into a marked pick-up in deal activity or pricing for non-prime property, says Savills in its latest review of the UK commercial property market. ‘Prime’ remains the most common word on purchasers’ lips.
Savills’ investment agency teams across all sectors reported increased demand for prime investments last month, while willing vendors of such properties remain scarce. The firm says this is reflected in pricing, with prime M25 and prime regional city office yields both revised down a quarter of a point.
However, the fact that the IPD All Property monthly capital value index for April was not negative is an “important moment”, Savills says – one that could prove to be the point where growth turns positive. If this is the case, and growth remains out of negative territory for the next six months, Savills would expect to see increased institutional buying of ‘average’ assets next year and “the beginnings of a turn away from the total domination of prime”.
Savills also notes recent research from Oxford Economics looking at the economic health of the UK’s regions, based on factors such as employment data and house prices. It says the results do throw up some surprises – while London is of course shown to have been the strongest region over the past year, the North West came second and the West Midlands came equal fourth with the South East.
Savills says this analysis supports its stance that “the best investment opportunities at the moment might well be outside London and the South”. While these opportunities are expected to diminish “as an acceptance of the arrival of the recovery becomes more prevalent outside London”, Savills says that for the next 12 months pricing may often reflect an overly pessimistic view of regional property prospects. “Therein lies the opportunity for the canny investor,” it adds.
