The North East continues to struggle to attract private sector funding, mainly because the return on investment in London, as a global capital, is far better than in all of the other regions in the UK.
There may be a couple of strong regional centres – such as Edinburgh and Manchester – but London and the South East are seeing greatest economic growth underpinned by global investment funds from the Middle and Far East and Asia. As confidence floods back into the London property sector, yields are reducing and prices rising under the pressure of competition from funds to buy investments. This week the publication from PropertyData.com investment league tables shows the comparison of performance between 2012 and 2013: values up 53%; deals up 52%; office deals up 42%; retail deals up 47%; and industrial deals up 67%. Lambert Smith Hampton report investment values hit the highest level since 2007 and that: “The appetite remains from overseas and domestic investors, and volumes are not being driven by a debt bubble.” This is not being seen in our city regions. However, during the last few months of 2013 there was a change in perspective. Driven by the shortage of good investments for sale, buyers started to shift their views to the regional cities.
This was linked to an improving ‘feel good factor’ borne out by recent announcements of an improving economy and greater confidence. I have had, at first hand, approaches from global and UK funds seeking investment opportunities in the North East region.
This is really gratifying and helps to reinforce my forecast that 2014 will be a better year for the property sector in the region. This improvement in value will also help to narrow, if not remove the gap, between higher development costs and lower development values. But, we still need to see a growth in the level of demand to increase rental levels to a point where profitable development can be achieved. This is beginning to be achievable in the industrial sector where there is a pent-up demand from occupiers for better quality accommodation and which I think will be shortly followed by industrial development of space at rental levels that make development viable.
I was at the launch of the renovated office Pearl House, on New Bridge Street and Northumberland Street in Newcastle. This plugs the gap in the supply of city centre office space until the Stephenson Quarter office development is available. I expect to see the financial incentives to take office space reduce. The purchase of investments is being achieved by cash purchasers and not increased debt levels.
:: Kevan Carrick is a partner at JK Property Consultants LLP, policy spokesman for RICS North East, a member of the RICS Dispute Resolution Panel and Chairman of Northern Dispute Resolution.