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Insight & Opinion

UK commercial property market improving in the regions

Author: Gemma

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Looking to invest in the right asset at the right time is the largest factor that will decide whether any venture is a success or a failure. For some time now, residential property has been the absolute top asset class for anyone looking to put money into UK property.

However, this might change in 2015, with predictions coming in that show the office market in regions outside of London is going to be growing in 2015, with landlords of this type of property likely to see real growth for the majority of the year in terms of their returns.

The latest report released this week by Knight Frank said that the improved economic outlook for businesses, along with the fact that the amount of available of Grade A stock in the commercial market is diminishing, will mean investors seeing increased rental prices on their side next year.

Manchester, Birmingham, Newcastle and Aberdeen will see the strongest growth while all other centres, apart from Sheffield, will witness increased office market rental in 2015, Knight Frank said, with the increased number of completions also playing into the hands of investors throughout the year.

Manchester will be the English area that welcomes the highest prices in 2015, Knight Frank predicts, with headline rental values expected to hit £34 per square foot by the end of next year. This will represent a ten per cent increase, which will be the highest seen in the year as Manchester reaches a record high for prices.

The health of the north-west city’s commercial market has been on the rise for some time, largely helped by the BBC moving much of its media operations to the area. This has seen Salford in particular becoming one of the trendiest centres in the UK for media companies, and it has meant more and more investment coming into the area as demand from companies for quality modern offices increases.

Other areas likely to see large increases in office rental income will be the likes of Birmingham and Aberdeen, where rent will go up by eight per cent and six per cent, respectively.

Investors in the office market are also likely to see vacancy rates dropping throughout the year as Grade A stock levels fall and more people look for other office spaces in which to set up or relocate their business. It will mean commercial property becoming a far lower risk investment option throughout 2015.

Louisa Rickard, associate, commercial research, Knight Frank, said: “As economic growth spreads to the regions we expect to see prime office rents rise across regional city centres in 2015. Lack of supply at the prime end of the market will add further upward pressure on both prime and secondary rental growth.”

James Robert, the company’s chief economist, added: “A year ago one could only speak meaningfully of rental growth in central London, but in 2014 we saw it re-emerge for prime in many M25 towns, Birmingham, Glasgow, and Leeds. The economic recovery has transmitted well to the wider UK in the last year. Consequently, we expect office rents to rise across the regional city centres in 2015, and lack of development to date could quickly migrate rental growth from prime to secondary.”

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