Weight of capital pushes investors into non-core locations

The weight of global capital targeting London is pushing investors into the UK regions, according to Richard Divall, head of cross-border capital markets at Colliers International.

'As a general rule, the stronger countries and economies are seeing capital going for non-core product. In the weaker countries, we're just seeing them go for core. But I can see more capital moving to the UK regions. Capital is gravitating towards dominant retail locations, but secondary retail is starting to look mispriced in some locations. The trouble with regional UK, though, is the availability of good product and quantum.'

Divall made the comments at PropertyEU's Outlook Investment Briefing held at the London office of Colliers International on Tuesday. Looking ahead to 2015, he said it would be a 'very exciting' year. 'Capital is moving all over the place. Logistics is going from strength to strength. There are not enough big units and so many platforms. There's a lot of Middle Eastern money targeting hotels and we will also start to see more action in alternative sectors, like care homes and so on. There's capital for everything.'

While conceding that the weight of capital in the market is pushing investors to move further out for higher yields, Mike Sales of TIAA Henderson Real Estate is not convinced that they can be found in regional UK offices. 'I'm not a believer in the regional office story. Additional performance is just not there because the occupiers are not there.'

The same applies to secondary retail, he added. 'We all know what's happening there. There's a very good reason why secondary retail is priced where it is.'

Sales is a believer, however, in the designer outlet mall sector. 'We've seen high yields and fantastic double-digit unlevered growth across Europe in the past few years.' When asked how he would spend a hypothetical €500 mln, Sales said he would be willing to invest a big chunk in designer outlet malls. 'I would buy outlet centres in both Europe and Asia.'