DTZ: Foreign fund activity grows in North
Foreign investment activity in the North of England is on the rise as yields begin to look more attractive and investment activity picks up, according to DTZ's latest European Quarterly report.
Middle Eastern and German investors purchased almost €2bn of property in the UK in the second quarter of 2008 compared with €0.55bn in the first.
The DTZ research shows that the market is moving closer to fair value and as yields adjust the number of investment opportunities will increase.
Bruce Poizer, investment director at DTZ's Manchester office, commented: "Much of the overseas investor activity in the UK market is orientated around London and the South East. However, we are seeing an increasing number of international investors participating in the regional markets – the last two sizeable office deals in Leeds and Sheffield were acquired by German and Danish funds, which have also been chasing high quality stock in Manchester and Liverpool. We are also in contact with a number of German funds who are also keen to buy prime distribution investment stock in our region."
German funds are currently circling prime office assets 2 Hardman Street in Allied London's Spinningfields, Manchester, and Mann Island by Neptune and Countryside in Liverpool.
Poizer added: "In a more risk averse, credit-constrained world, the focus for these investors will be upon only the best opportunities which will demand an increasingly large premium by comparison to secondary assets, which are looking particularly vulnerable to further price reductions.
"The IPD (investment property database) is reporting a 23% reduction in commercial property values in the year to date and we expect a challenging investment environment over the rest of this year and into 2009."
Poizer continued: "The inevitable return of equity-based investors, whether opportunity funds or more traditional players, is key to the market's recovery, but its timing is likely to be heavily dependent on some indication that the worst of the turmoil in financial markets is finally behind us.
"It is interesting to note that several German funds, who have previously been unwilling to look outside the London market are now willing to consider acquisitions in the north west. This is in part due to the fact that the recent turmoil in the financial markets is likely to have a more negative effect on rental growth in the city of London by comparison to the regional city centres."
In Q2 German investors were particularly active across Europe, accounting for 20% of cross border deals, DTZ said. Over 60% of all European purchases by German investors were cross border in Q2 2008, compared with 20% in the same period of the previous year. While German open-ended funds have been seeking value across Europe, they have been far less active in their home market, where correctly priced investment opportunities have been limited. Investment transactions in the German market as a whole fell sharply to total only €4bn in Q2 2008, down 50% on Q1.