UK - Real estate fund managers are opting for ‘alternative' assets rather than taking risks on secondary locations as pricing forces them out of London, according to Investment Property Databank (IPD).
Although capital value growth for London commercial property slowed to 0.4%, down from 0.6% a year ago, hotels close to the capital had emerged as the alternative category most favoured by investors, said Greg Mansell, head of research for UK and Ireland at IPD.
Mansell attributed increased investor appetite to the sector's strong income characteristics and range of leases, most notably popular long-term fixed leases and turnover leases bearing higher operational risk.
Healthcare and care home assets, and forestry and agricultural assets, also emerged as alternatives to investing in traditional sectors outside London. Even leisure assets gained some traction because of their long leases, despite recent gym operator bankruptcies.
IPD data suggests investment in property outside the capital fell to -£161m in Q2, its first negative quarterly showing since March 2009. The data indicates investor reluctance to invest in regions blighted by weak consumer demand despite discounts of 30-40% on commercial property in markets including Birmingham, Liverpool, Manchester and Edinburgh.
Despite investor wariness and weak local occupier demand, regional real estate market offered better value than the capital "for those investors willing to take a punt", said managing director Phil Tily.
However, Mansell said defensive alternatives would continue to do well as long as the market remained risk-averse. "They have a recent proven track record," he said. "They held up quite well in the crisis."
Otherwise, transaction activity will remain muted, he said: "If things really improve - and it's a big ‘if' - investors might look just a bit further afield at offices in the Southeast and retail for returns."
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