If you’re in the UK and seeking some warmth this autumn, the advice is to head for commercial property in Manchester, where it is said to be hot, hot, HOT!
That’s the commercial property rating bestowed upon Manchester’s industrial and retail sectors by DTZ’s latest Fair Value Index. The global real estate advisers produce the Fair Value Index as a means of providing investors with advice on international commercial property pricing. Markets are awarded a capital-lettered COLD, WARM or HOT rating depending on their attractiveness. Retail and industrial are the only sectors of commercial property in Manchester granted a HOT rating, ahead of the London and Glasgow commercial property markets.
The rating of HOT is an upgrade on the previous WARM given to the two Manchester commercial property sectors. Another Manchester commercial property sector where the temperature is rising is offices, which has gone from COLD to WARM. Other regional offices following Manchester’s example in receiving an upgrade include offices in the commercial property markets of Newcastle, Leeds, Birmingham and Bristol. All moved up to WARM. Like Manchester, Heathrow’s industrial commercial property market also enjoyed a change in temperature, when its COLD rating was upgraded to WARM.
DTZ’s research compares expected and required returns. Manchester’s retail and industrial commercial property sectors were estimated to be more than 5% underpriced, which triggered a HOT rating. Markets more than 5% overpriced are COLD. Any commercial property market between this range is classified WARM.
The UK’s commercial property market, ably assisted by Manchester, scores higher overall in the index, which is measured per quarter. The previous two quarters saw a fall in the UK’s commercial property rating and DTZ attributes the improved score, as they do for that of international markets, to ‘the fall in bond yields in core markets’. This fall was fuelled by ‘weakening confidence in the economic outlook’ says DTZ. The current UK bond yield stands at 1.4%, which is then compared to ‘most office and retail markets’ in commercial property, which are ‘trading at yields of around 5–6%. This offers a substantial premium over bond yields’.
The ‘increasing stock market volatility’ compared to the stability of commercial property in Manchester is highlighted as another reason for improved confidence in commercial property, which offers ‘a broadly stable market capital value outlook going forward’.
DTZ points to recent commercial property in Manchester acquisitions, ‘by the likes of DTZ Investment Management, Henderson and SWIP’ as signs ‘there’s value in the regional markets. Manchester in particular has a lot to shout about across all the sectors’.
Looking south of Manchester’s commercial property market, DTZ finds that London’s commercial property market showing a lack of prime commercial property has ‘supported very strong rental growth and yield compression’.
DTZ has headquarters in the capital and operates in 145 cities across 43 countries. Its existence is owed to the result of a series of mergers, involving companies with the initials D, T and Z, at various stages since 1853. The organisation offers services in five areas of commercial property: capital markets, valuation, occupational and development markets, construction and facility management, and consulting and research.
