Investment values are running ahead of occupier demand in city centre Manchester, according to a report from DTZ.
Of the eight UK markets, the prime London City office market is now considered to be the only 'hot' investment location in the UK. Based on DTZ's fair value classification, this means that investors can expect excess returns from this market. Another five prime office markets – Cardiff, Edinburgh, London's West End, Newcastle and Nottingham, along with London West End retail and Heathrow industrial are classified as 'warm' investment locations where investors can expect adequate returns.
The findings are contained in DTZ's annual Money into Property report.
Birmingham, Bristol, Leeds and Manchester are classified as 'cold' investment locations where investors can expect below-adequate returns. DTZ views these markets as currently priced higher than fair value analysis supports.
Bruce Poizer, investment director at DTZ commented: "Manchester's classification as 'cold' reflects the significant price increases seen in some of the most recent prime city centre deals since the autumn. Institutional demand remains strong and as such this may present a selling opportunity for some.
"It is worth noting that the DTZ fair value methodology provides an average market view. Some excellent asset specific opportunities are still available in 'cold' markets. As we start to see the banks increasing net lending over the next year or so there are likely to be some great opportunities, especially in the secondary sector where much more attractive initial returns are on offer as well as an opportunity to enhance value via active management. In the context of generally improving market conditions these opportunities can provide excellent medium term returns.
"There is a reasonable amount of high quality vacant office stock in the city centre but current projections based upon historic average take up would indicate that we could see shortages of good quality space starting to become an issue as early 2013. Given the length of time it takes to design and deliver these city centre buildings, developers already need to be dusting off their plans in order to ensure that buildings are delivered at the right time."
Global invested stock is predicted to return to growth of 5% in 2010 to $US11.4trn, with UK invested stock expected to rise by 8% this year to £605bn.