The Bank of England's decision to cut interest rates has instilled confidence among investors and this cautious optimism is reflected in increased activity and interest, with £2.9 billion transacted in 2024, 10% above 2023 volumes. Notable transactions included Tristan Capital Partners acquiring Cody Technology Park, Farnborough, for £112 million, and Ashtrom Properties buying Central Square, Leeds, for £78 million, reflecting a yield of 8%.

Changing buyer demographics in regional offices

Buyers for regional office assets has changed markedly in recent years. There were only 15 repeat buyers in 2024 (excluding portfolio sales). Overseas investors were the most active, accounting for 41% of investment. French SCPI funds have notably increased activity, attracted by smaller lot sizes and liquidity of UK regional markets – 92% of lots traded since 2019 have been below £50 million. These investors and new entrants are expected to replace the investment activity of UK institutional investors, which accounted for only 11% of investment volumes in 2024, and are expected to remain subdued due to reduced portfolio weightings towards offices and maturing pension schemes.

Adjustment in pricing levels

Pricing levels have also adjusted, with prime regional office yields showing signs of trending downwards. The prime yield for regional offices stands at 6.75%, following a recent reduction from 7%. This presents a unique opportunity for investors to capitalise on attractive pricing, especially in the Big Six regional cities (Birmingham, Bristol, Glasgow, Edinburgh, Leeds, Manchester), as the prime yield gap to central London is at its widest level in the last 30 years.

Secondary office buildings in prime locations requiring refurbishment present significant value-add opportunities. With the right capital expenditure, these assets can be repositioned to meet modern occupier requirements and capture recent rental growth. All of the Big Six markets are undersupplied for high-quality office space, so investors willing to upgrade these properties can unlock substantial value and achieve higher returns.

However, upgrading secondary assets to meet modern standards requires significant investment. Investors must carefully assess the cost-benefit ratio of such projects. While the potential rewards are substantial, the initial outlay and ongoing maintenance costs can be considerable. A thorough due diligence process, including detailed financial modelling and market analysis, is crucial to ensure the investment is viable and aligns with the investor's overall strategy.

Robust demand for Prime office spaces

From an occupational perspective, demand for prime office spaces remains robust. Prime assets in cities like Manchester, Birmingham, and Edinburgh continue to attract significant interest due to their strong economic fundamentals and vibrant business environments. These cities offer a compelling mix of affordability, quality of life, and connectivity, making them attractive destinations for businesses and office investors. The stability of prime assets provides a solid foundation for investors seeking reliable returns.

We expect investor confidence to continue rising due to improving tenant demand in the occupational market with Savills research showing take-up across the Big Six totalling 4.6 million sq ft, 15% above the five-year average and the highest total since 2019.

And with over £400 million of regional office assets placed under offer since January, the future looks bright for the regional office market.

Further information

Contact James Emans

Market in Minutes: UK Regional Office Investment Market Watch