Regional property investment: ‘Competition for lenders outside of London will increase’

Regional property investment: 'Competition for lenders outside of London will increase'

Regional property investment so far this year is at its highest point since 2007..

Regional property investment so far this year is at its highest point since 2007.

According to Knight Frank, investor demand is increasing for regional opportunities as prime yields harden with Manchester and Birmingham accounting for the largest proportion of investor take up.

This was underlined by research from HouseSimple, which found that Manchester is the most likely city to see a property boom in the next 10 years.

Of the top 10 hot spots, the online property agent said only one, Woking, was located within the M25.

Other popular areas included Rotherham, Birmingham, Leicester, Norwich, Ipswich and Bradford.

“Regional opportunities have become more attractive to investors as leasing markets have strengthened,” said Lee Elliott, Head of Commercial Research at Knight Frank.

“With the weight of money targeting markets outside London rising, we expect bidding to become more aggressive and place pressure on pricing.”

Laura Jane McCauley of development lender, Imperial Blue Finance, said she had seen a clear change in property investment strategy conducted by a number of its clients.

"London remains a strong market for development, but many of our clients are now starting to target key urban hubs such as Manchester, Leeds and Edinburgh and the surrounding areas, as they are taking advantage of the rising cost of living, population increases and lack of supply in the capital,” said Laura.  

“In fact, at least 75% of our investments are outside London because the project returns tend to be far stronger and we only see this improving in the short to mid-term."

Scott Marshall, Operations Director at Roma Finance, is another who expects to see an increase in new building in all major towns and cities, especially in the North and North West.

“There will be significant activity with the arrival of HS2, which will open up new workforce opportunities for more businesses, which in turn will fuel the need for more housing and lending,” said Scott.

“We are also seeing more initiatives to create a true northern powerhouse and this is expected to result in more big businesses and organisations relocating north.

Scott said landlords were achieving higher yields outside of London because of the lower cost of housing and high rental demand, which was proving lucrative for investors.

“Competition for lenders outside of London will increase, but those that currently only lend inside the M25 will have to invest in their infrastructure and development staff to properly service brokers in other major cities."

Ashley Ilsen of Regentsmead added that the Midlands was another popular hotspot and it was funding several large scale developments in the region and also encouraged more lenders to look outside London.

“They may be tempted but I think most lenders, particularly those newer lenders with less experience may stick to what they know as London is perceived as a ‘safe’ bet, even if the market were to turn,” said Ashley.

“Having too many London centric lenders could become a real issue as it will only encourage the gap between London and the rest of the country to float further apart.

“There are some parts of the country that need the liquidity, however it may be down to the government and not lenders to do something about it.”

Bob Sturges, Head of Communications at Omni Capital, felt growth would remain within the regions but London could come under pressure from a lack of growth.

If one region is coming under discernible pressure it is London, and prime central London [PCL] in particular,” said Bob.

"PCL growth forecasts are between 1% - 2% in 2016/17 before rebounding to 5% - 6% in 2018/19.

“This alone might force London-centric lenders to seek opportunities beyond the capital.”

Bob suggested that areas of demonstrable high demand such as Oxford, Bath, Bristol, Southampton and Cambridge might interest lenders, but said Omni remained conservative on funding outside London.

"For our part, we have always taken a pragmatic view of funding opportunities outside the London core, and will continue to be asset rather than postcode focused,” said Bob.

Knight Frank is, however, convinced that 2016 will see a growing number of investors looking north, encouraged by figures showing that eight out ten regional cities will see record rental growth by the end of this year.

“The increase in occupier activity in the regions (somewhat behind the London curve) is good news and very fortuitous for those investors that entered the regional markets first,” said Stephen Hodgson, Head of Knight Frank regional network.

“This continuing trend will give longevity to the recovery in regional capital markets and should kick start much needed new speculative schemes.”

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