NFU Mutual is buying a Manchester office property, confident in the recovery of rental values in the UK city.

The £14.8bn insurance fund said it had exchanged contracts on Chancery Place in Manchester’s business district. The deal reflects a 5.05% yield, further evidence of the city’s increased appeal to investors.

NFU continues to increase its real estate portfolio, buying both office and retail properties. Last year, total returns from its property portfolio rose to 12.5% from 4.4% in 2012. Property accounts for 7% of its overall portfolio.

CBRE director of capital markets, Will Kennon, said NFU had an opportunity to draw upon the rental growth being evidenced across Manchester’s occupational market.

In its 2013 annual report, chairman Richard Percy said the general upturn in market returns – particularly in equity and property markets where NFU has a higher exposure – has led to “strong investment gains”.

In June this year, analysis by Legal & General Property pointed to the move away from London by investors to regional markets. Manchester, as well as Aberdeen and Edinburgh, were all attracting capital as a consequence of intense competition for property in the UK capital.