UK - PwC and Centre for Cities are urging institutional investors to back a £500m (€621m) government-sponsored investment fund targeting mid-sized UK cities.

Think tank Centre for Cities claims the proposed fund, which would combine public sector subsidies with private sector capital and expertise, could regenerate secondary northern English cities such as Sunderland, Preston, Derby and Wakefield.

In a report published this month, Centre for Cities pointed to occupier reluctance to move into obsolescent city centres, despite significant overall inward investment into the four cities in the decade to 2008.

One of the reasons it cited for weak demand in the central business district was the preponderance of converted Victorian residential and near-obsolescent office blocks.

In Sunderland, for example, only three of 105 new businesses are located in the city centre despite lower city-centre rents.

This it contrasted with strongest demand in the capital within the City and West End, despite significantly higher rents.

The report's case is predicated on the potential for economic clustering in new central business districts.

Starting with reconfiguration of vacant public sector office space, the city centre fund would invest both in real estate assets and in local infrastructure, including transport.

"That some types of business prefer out-of-town locations is not necessarily something to be concerned about," the report said.

"[But] the benefits of a city centre location for a manufacturing firm, which requires lots of land as an input, are much less clear than they are for a service sector business that may benefit from its proximity to other similar businesses."

Despite its case for the benefits of regeneration to rundown cities, the report was short on the case for pension funds to commit capital to the proposed fund.

Yet it warned against returning to a "build it and they will come" approach.

"Due to a lack of private sector demand, such projects have received a double subsidy," it said.

"Firstly, there has been a subsidisation of the development.

"Secondly there has been a subsequent rent subsidy when the public sector has moved to fill the office space in response to a lack of private sector occupiers."