Cambridge, Brighton and Edinburgh outperform the UK office market
Analysis of the UK office investment volumes show that £1.3 billion has been invested so far this year (to mid-March 2019) but investment performance has varied across regional markets.
Savills says specific office markets are showing significant under/over performance depending on their position in the cycle.
Cambridge, Brighton and Edinburgh, with positive occupational markets, lack of development and limited choice for occupiers, have seen valuers applying higher rental value growth and increases in capital values, and therefore appear as high performers, according to Savills analysis of MSCI data.
In comparison, markets such as Oxford, Nottingham and Glasgow have seen no or limited growth in capital values but their strengthening occupational markets have driven rental growth. This will feed through to income return in the medium term and have a positive impact on values, says Savills.
Mark Porter, director in Savills UK investment team, says: “Income return is largely driving the performance of the office investment market at the moment, although some cities are still seeing positive capital growth.
“Even those behind the curve at the moment are likely to see positive uplift in the next few months as the major regional cities are generally under supplied with new office development and are forecast to see continued employment, keeping them high on investors’ wish lists in 2019.”
Steve Lang, director in Savills commercial research team, adds: “Overall, the analysis shows quite how much a market’s position in the property cycle can impact short-term returns.
“For example, some have been ‘hit’ with a short-term structural shifts impacting from a weaker local occupational markets, such as Aberdeen, where oil price falls have led to lower valuations, but despite having been a lower performing office market in the current cycle it is still a key city and is expected to out-perform as sentiment recovers.”