Research published by DTZ based on comparative property prices for each city in the office, industrial and retail markets, puts Leeds and Manchester out on top in terms of cities giving the best returns for investors looking to enter the market now.
The report also shows the UK regions moving strongly ahead of London as property prices in the capital continue to increase. The retail sector of Manchester and Leeds offer the biggest opportunities, driven by capital growth as rents rise over the next four years for these two cities, DTZ says.
As a result Manchester and Leeds are expected to offer very attractive total returns for the 2014 -18 period.
Greg Davison, DTZ investment director covering Yorkshire, said: “The opportunity to generate above average returns from commercial property within Leeds is largely unique within the UK insofar as it occurs across all of the key market sectors. Backed up by the strong local economic growth outlook and market restrictions, due to a limited development pipeline, Leeds offers investors a compelling story.
“We have started to see yield compression take hold for prime assets through pricing readjustment and in anticipation of rental growth for which there is now real evidence, born out of a lack of supply and stronger economic outlook. Gaining exposure to the best in class remains difficult but as rental growth gains momentum we expect the performance window to increase beyond just prime property; as ever, it is a question of knowing where the best opportunities lie.”
The findings are based on the DTZ UK Fair Value IndexTM, which provides a quarterly insight into the comparative attractiveness of current property pricing in the UK. A score of 100 indicates that all markets are underpriced and zero that all markets are overpriced. A score of 50 indicates fair value. Meanwhile, occupier activity in the Leeds office market rose 30% in the first quarter in terms of the number of deals, compared with Q1 2013.
The figures come from a study by global property consultancy Knight Frank which predicts that rents will come under upward pressure in Leeds in the coming months, with the headline level of £25 per sq ft forecast to increase to £26 per sq ft by the year-end and £26.50 by the end of 2015.