The share of real estate investment activity in non-capital European cities has been a trend that has taken a few years to catch on in some countries. Turning the clock back to 2009, it was clear that capital cities were still the order of the day with the likes of London, Paris and Madrid catching the attention of investors from across the globe.

Coming back to the present day, however, and there is a change in the air. Investment into non-capital cities which at the end of 2018 sat at 36 per cent (in line with the long-term average) has sprung up to 43 per cent, according to our figures at the end of H1 2019. Looking at where this investment is going, there are certainly some countries that stand out from the rest.

France, whose share of regional investment has stood at an average of 16 per cent in the last five years, has seen investment outside Paris jump to 28 per cent – a rise of 77 per cent. A lack of stock in Paris and its outskirts, as well as a compression of yields (now at 3 per cent in the offices market in the heart of the capital), has meant investors are looking further afield for their returns.

Areas such as Marseille, Bordeaux and Lille have become increasingly popular with investment levels standing at €662 million, €263 million and €255 million respectively in 2018. They’re on track to have an equally successful 2019 with Lille already boasting €456 million at the end of H1 2019. 

There’s a similar pattern in the UK where investment into the regions now stands at a 55 per cent share of the total compared with the five-year average of 35 per cent. Stand-out places such as Edinburgh, Glasgow and Leeds have seen high investment volumes already in H1 2019 (£483 million, £451 million and £280 million) in line with the year before. Like France, this is the result of high competition for core/core plus product in the capital and record low yields.

Similarly, Spain's secondary cities’ share has jumped from 53 per cent to 65 per cent as investors turn to the likes of Seville, Bilbao, Valencia and Murcia. Savills Aguirre Newman has recently announced its third office opening in Spain in Valencia in response to growing client demand across a diverse range of asset classes.

So what next? We believe that secondary cities will remain on investors’ radars (especially the ones with core plus/value add or opportunistic strategies), as pricing and activity in the core segment remains extremely competitive. Several of these secondary cities are also supported by positive economic fundamentals and offer a good quality of life at a lower cost.

According to Oxford Economics five out of the top 10 cities with the strongest office-based employment growth forecasts for the next five years are secondary cities including Manchester (2nd), Lyon (4th), Malaga (5th), Gothenburg (8th) and Malmo (9th). What remains to be seen is whether there will be even more cities joining them as investors look beyond traditional prime CBD opportunities.

Average annual growth over the next five years of office-based employment

Further information

Read more: Spotlight Investment France H1 2019