Leisure investment in Scotland and the North of England topped 2016 figures in just six months this year, in stark contrast to an otherwise slow start to 2017 in the regions.
Outside London, leisure investment reached 90% of the 2016 total in the first half of the year, despite a relatively subdued half in volumes in the regions. Just £8.2m was invested outside the capital, compared with £13.1m inside it – a difference of 37%.
In comparison, between 2007 and 2016, annual investment in the regions was on average 18.5% below the capital’s totals.
Andrew Marston, national research director at CBRE, says this was partly a reflection of supply levels in the regions.
London’s dominance took a temporary hit in 2016 when investors, concerned about the capital’s prospects in the wake of the EU referendum, sought out regional opportunities, which were perceived to be less affected by geopolitical events.
Total investment in 2016 came to £19.9m in the regions, outperforming London’s £19.7m. That reflected a year-on-year fall of 7% in the regions and 24% in the capital.
As a result, there were fewer investment opportunities going into 2017. “Some of these markets aren’t particularly deep compared with London,” Marston says.
“[The regions] coasted pretty smoothly through 2016 without that big collapse we saw in the early summer in the London market. It was down a little compared to 2015, but when you look back at it now there’s nothing to suggest there was a significant political event happening that might have caused wobbles in the market.”
He also suggests that because of that seasonality, investment is likely to pick up later this year.
The rise of the alternatives
Although the regions outside London historically had a market split largely between offices and retail, that has shifted in recent years as alternatives, industrial and leisure grow in demand.
This is partly because bulky retail and office assets are few and far between in the regions, which means there are often quarters during which investment volumes shoot up off the back of one deal and then fall again owing to lack of supply.
In Scotland, which Marston says is especially susceptible to this trend, Dutch pension fund APG bought a 75% stake in the £1bn St James Centre development in Edinburgh last year. This year, the biggest Scottish investment so far is the sale of three units on Buchanan Street in Glasgow for £29.3m.
When opportunities do arise in Scotland, there is considerable of appetite for them.
Marston says: “There’s still a bit of a pricing differential in Scotland, where you can still get some good-quality office buildings let to strong financial or professional covenants. You can get those well-let modern buildings that are comparable in terms of their quality to a London office building but at a lot lower entry price.”
A similar concept applies to leisure. While the sector has become increasingly attractive to investors shifting their capital away from pure retail assets, the sudden growth seen this year has come down to several major sales.
In the North of England, for example, leisure investment totalled £365m at the half year point – already dwarfing 2016’s £205m. However, £108m of that came from the Printworks sale in Manchester to DTZ Investors, on behalf of Strathclyde Pension Fund.
This could either mean leisure will start to play a bigger role in the regional market or that this year will be an exceptional one for the sector.
By contrast, industrial and alternative assets tend to have smaller lot sizes, which means that when they grow, they grow steadily and consistently.
This is perhaps most obvious in the Midlands, where industrial investment has underpinned a steady overall rise in capital flows to the region, accounting for almost a third of all investment over the past two years. It means the Midlands are less dependent on major retail or office developments to carry its investment volumes in the way Scotland is.
Industrial is especially strong in the Midlands because of its “golden triangle” status – 90% of the UK population lives within a four-hour drive from an area stretching from Nottingham to Bedford and Birmingham, making it an ideal place for businesses to use for warehouses or distribution centres.
As long as the demand for industrial property continues, the regions – particularly the Midlands – will be in a prime position to attract capital flows in their direction.
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