Industrial property in Leeds is likely to offer the biggest UK opportunity for property investors, though other European destinations could rise in importance as interest rates rise.
Undervalued by 14%, Leeds industrial units offer the highest average total return opportunities – combining rental and capital growth – for the period 2014-2018, according to DTZ.
The next two main opportunities in commercial property investment opportunities in the UK are retail units in Manchester (undervalued by 13.4%) and Leeds (undervalued by 13.3%), again driven by capital growth as rents rise over the next four years.
Greg Davison, DTZ investment director for the region, says: “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 [retail, industrial, office]. Backed up by the strong local economic growth outlook and market restrictions due to a limited development pipeline, Leeds offers investors a compelling story.”
The bottom three opportunities are retail in London and Cardiff, which are overvalued by 19.8% and 5.4% respectively, and Nottingham retail, which is moving towards being fairly priced.
Apart from Cardiff retail, all of the markets outside London are still around or below fair value, making them attractive to investors, says DTZ.
London itself offers a mixed picture, with ultra-low yields making London prime retail look overvalued, while industrial is around fair value, along with parts of the City and West End office market.
Economic recovery is behind the perceived investment opportunity, but with interest rate likely to rise, says DTZ, in 2015, higher bond yields will make prime property look less attractive in comparison and investors will look increasingly beyond the UK towards Europe.
The findings are based on the DTZ UK Fair Value Index, which overall fell from 73 to 60 through the first quarter as market yields decline. DTZ predicts the index will fall below 50 by the end of the year.
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