Manchester is No 1 in retail commercial property investment31st July 2014

The latest research from commercial property consultancy DTZ reveals that Manchester has replaced industrial property in Leeds as the UK's most underpriced market and consequently is the most attractive commercial property investor sector at present in the UK.

DTZ's research shows that the UK's top three markets for prime commercial property investment are: 

• Manchester Retail (-13.6%)
• Leeds Industrial (-11.8%)
• Leeds Retail (-11.1%)

Based on comparative property prices for each city in the office, industrial and retail markets, the list pinpoints those markets across the UK most likely to provide the best returns for investors looking to enter the market now. At present, UK regions are more attractive than London, although the flow of investor cash beyond the capital is already impacting the returns available to investors and resulting in changes since Q1.

Manchester retail tops the list of individual markets, with property underpriced by 13.6%, deposing Leeds industrial, which was number one in Q1. However, Leeds retains two of the top three markets with its industrial and retail property underpriced by 11.8% and 11.1% respectively. Nottingham is the most underpriced UK office market at 9%, which makes it the fourth most attractive individual market.

Fergus Hicks, DTZ’s Global Head of Forecasting, said: “Regional cities are forecast to deliver the highest returns across all sectors, with Manchester topping the retail sector, Leeds for industrial and Nottingham for offices. These regional cities benefit from higher income yields which boost total expected returns. Industrial is the standout sector, benefitting from a higher income yield compared to retail and offices. All 10 of the UK’s industrial markets are currently rated around or below fair value.”

Since Q1, DTZ has downgraded three markets – Leeds offices, Manchester offices and Newcastle retail – to reflect that these are no longer underpriced by at least 5% below fair market value. On the flip side, three markets look more attractive to investors now than in Q1 and DTZ has reclassified London City offices, Cardiff industrial and Glasgow industrial as underpriced.

The findings are based on the DTZ UK Fair Value IndexTM, which provides a quarterly insight into the comparative attractiveness of current property pricing in the UK. A score of 100 indicates that all markets are underpriced and zero that all markets are overpriced. A score of 50 indicates fair value. Of the 32 markets covered in Q2 2014, 11 were rated Hot, 19 Warm and two Cold.

In the second quarter of 2014 the UK Fair Value IndexTM stayed unchanged at 64, showing the UK continues to offer attractive investment opportunities. DTZ researchers predict that the UK Fair Value Index will fall below 50 by the end of the year.

Richard Yorke, Head of UK Research, said: “All eyes are on the Bank of England to see when the first interest rate rise will come, with movement before the year-end looking more likely. We therefore expect the UK property market to present fewer attractive opportunities over the next 18 months. This reflects regional markets becoming fully priced as property yields reach their low points in the cycle, while interest rates rising will push bond yields higher. This will result in property being less attractive on a relative pricing basis compared to other investment options.”