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Deloitte report claims investors are increasingly eyeing development opportunities beyond the M25

Property investors are ‘increasingly’ heading out of London to pump cash into office buildings in the regions, according to a new report by Deloitte Real Estate

The UK Key Cities publication found that ‘savvy investors seeking higher returns’ were now hunting commercial properties outside the capital as they found themselves priced out of the London market.

The findings come just weeks after the AJ reported that foreign investors were already diverting their attention away from London and  eyeing up the UK’s regional residential market (AJ 21.03.2013)

Anthony Duggan, head of research at Deloitte Real Estate, said: ‘Investors are increasingly being priced out of the London real estate market.  We’ve seen a large number of new entrants to the UK investment market cutting their teeth in London, and we now expect to see them beginning to pursue opportunities in the regions where there is the potential for higher income yields.’

According to the report, occupational demand for offices will be mainly from the professional and administrative sectors with active demand from the legal sectors in the regions.

Rental growth is not expected in Leeds and Birmingham but Manchester’s lack of Grade A ‘completions in core areas’ is expected to drive rents up by three per cent with incentives reaching a record low.

However Deloitte’s predict a rise in the number of refurbishments rather than new construction in Leeds, and in Birmingham a high number of offices changing use, such as hotels and residential. North of the border in Scotland, current lack of development and low stocks of Grade A space in the office market will push rental growth; Edinburgh forecasted a seven per cent increase and Glasgow five per cent. Glasgow is also the first city in the study to see new development activity commencing.

Duggan concludes: ‘We expect to see increasing activity in the UK’s regional markets during 2013 with more, albeit still low, leasing deals and positive rental growth in some locations.  Importantly, there are strong signals that there will be further investor interest in the regional office markets this year with both domestic and overseas investors looking outside London for their returns.’

‘It is encouraging to see the momentum that a number of these key regional centres have in terms of infrastructure and governance and we believe that this will provide a level of confidence to investors in the future performance of these local real estate markets.’

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