In our Looking Beyond London programme for EGTV, agents for London, Birmingham and Edinburgh pitched their locations to a panel of investors, Dragons’ Den-style. Could they be convinced to spend outside the South East?
London is the real estate capital of the world. Everybody wants to live, work, play and invest there, but where might investors look to next? Birmingham, Edinburgh, elsewhere in the UK perhaps?
To get to the heart of the issue, EG lined up a panel of investors to offer their views and listen to pitches from agents on London, Birmingham and Edinburgh.
The pitches heightened most of the investors’ regional appetites, but for Hideto Yamada, managing director, Europe, at Mitsui Fudosan, London remains a steadfast proposition.
“Occupiers keep on coming to London to open their business and access the global market and that is key for us,” he said. “We are not just snapping up existing properties with 4% or 5% yield, we want to create value, up that value and see the higher return in the long term, so we are buying the future rent rather than existing rent.”
Gavin Willins, BNP Paribas Real Estate’s head of Scottish investment, avoided the issue of independence in his pitch. But, quizzed later by EG editor Damian Wild, who was chairing, Willins revealed the matter had not affected investment decisions.
“A few investors did bring it up in 2012 almost as an excuse not to commit, but by the end of this year we will have traded in the office market over £400m this year, compared to £35m last year and even if Scotland did become independent, it could only be good for Edinburgh because it will be at the centre of it,” he said.
Birmingham had the support of the investors, particularly Rob Howe, head of UK real estate at Valad Europe, who was complimentary despite BNP Paribas Real Estate’s Andrew Meikle admitting that speculative development was a long way from moving forward.
Howe added that key to future investments were “markets where there has been no development for four or five years and therefore shortage of supply and no rental growth”.
Peter MacPherson, commercial director at Scottish Widows Investment Partnership, said the firm was positive about investing regionally. “While we have still been investing in London, our focus is moving into the provinces now. But we are not going to stop investing in London.”
And Kent Gardner, chief executive of Evans Randall, offered the agents a vote of confidence. “Seeds have been sown and I can see opportunities in Edinburgh and Birmingham, not only in being first movers, but also in terms of growth and we start to see real UK businesses expanding.”
For London: Richard Garside, head of City investment, BNP Paribas Real Estate
“London has amazing ability to evolve; it bounced back from one of the worst recessions we have seen and that has given it global appeal for investing in real estate. In the occupier market, pre-commitments are taking place in the TMT sector and the insurance market. The two big tower buildings coming through in EC3 are nearly 60% prelet at all rents above the market, a reflection that we have rental growth on its way. There could be further yield compression from the current 4.5% and, combined with limited supply of stock, there could be some very good returns for the next five years.”
For Edinburgh: Gavin Willins, head of Scottish investment, BNP Paribas Real Estate
“The council’s ongoing investment in infrastructure is an example of the city’s forward-thinking nature. We have £750m invested in the tram network and we are already seeing huge improvement. Over £240m has been invested in the airport since 2000 and £260m will be invested by 2020. On the rail network, there is £1bn being invested. Outside London, Edinburgh has the most FTSE100 companies in the UK and we have seen significant newcomers in banking. There is an inherent tight supply of office space, liquidity and a long history of varied investor demand.”
For Birmingham: Andrew Meikle, head of Birmingham investment, BNP Paribas Real Estate
“We have a diverse employment base. We have the financial services sector, plus the second biggest legal and professional sector after London. We have a range of manufacturing and engineering and the UK’s biggest aerospace sector. Government infrastructure has transformed the city, including Birmingham New Street and Paradise Circus. HS2 will bring employers out of London, and the runway extension at Birmingham Airport will open new destinations. Over-supply is coming to an end, so there is headline rental growth and that is only going to move one way.”
Tweets
@SirenDesign23?Rooting for more investment into the regions. Is lack of supply not hampering returns in London anyway? #beyondlondon
@mphamer?Regional inv. a no brainer, in the right place. MCR is a strong city and yet yields at a big discount to the SE. #beyondlondon
@FGBurnett?Aberdeen is an excellent prospect for investment, a very active occupational market and sound economic outlook #beyondlondon
@DamianWild Rob Howe says investment demand running ahead of occupational but Valad looking at markets where there’s been no development #beyondlondon
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