Real estate investment and liquidity
In the period from 2008 (roughly the beginning of this cycle) to mid-2018, the UK accounted for over 30% of the European real estate investment market, and more than a third of the cross-border component. The depth, maturity and transparency of the UK market, and associated quality of legal and business infrastructure, are among the explanatory factors – all of which we think are likely to persist for many decades.
As the major centres of commercial activity, cities naturally feature strongly in these figures. London is in a league of its own here even in a European context, accounting for 12.5% of overall European investment and about 40% of the UK total over this period. This makes it the largest urban investment market in Europe, with only Paris coming even close.
But what about the rest? What patterns can we detect within the UK and how might they change, if at all?
Looking at absolute levels of investment, Manchester and Birmingham comprise the next tier, attracting over £1bn per annum in investment across all commercial sectors, followed by a group of smaller cities (Edinburgh, Glasgow, Bristol, Leeds) in the £350m to £500m per annum range and a third group (including Liverpool, Newcastle, Sheffield and Cardiff) where turnover mostly runs at £250m to £300m per annum. To some extent, although not precisely, this just reflects respective city sizes. A more useful longer-term indication can be derived by looking at the “investment intensity” of different cities.
In other words, if size is the determinant factor, what level of investment activity do they attract? For this research, CBRE has updated its previous estimates of investment intensity, the results of which are shown in Figure 1.
Despite a population approaching 10 million, London wins here too, with investment of over £20,000 per head over this period, which further highlights the unusually-dominant position of London as a magnet for investment in a mature multi-centric economy. Among the other cities Aberdeen and Edinburgh again perform most strongly (as they did in our previous two assessments in 2016 and 2017), reflecting likely their strategic importance to specific industries, energy and financial services respectively. The larger conurbations, Manchester and Birmingham, are middle ranking and stand below Bristol and Cardiff. Note that we use the Primary Urban Area measure of city population for this calculation.
Figure 1: Property investment intensity (£ per head of population in the Primary Urban Area), 2008-2018, selected large UK cities
Source: Property data, CBRE, ONS
Interestingly, outside London, the highest investment intensity measures are not recorded in the major cities at all but in smaller freestanding towns mostly in the south of England, such as Cambridge, Reading, Milton Keynes, Oxford and Slough.
Property investment levels are inherently cyclical. If history is a guide, in the period to 2040 we would expect at least one mild recession and one rather more serious one, both of which would affect the level of UK property investment activity.
However, it seems less likely that long-standing patterns will change materially, which may leave some cities feeling that institutional investors’ established preferences mean that they don’t get their ‘fair share’ of real estate investment.
City policymakers can, however, act on this, because it’s clear from Figure 1 that investment is not simply a function of city size. The tools available to attract a higher share of property investment include a business- and investor-friendly stance, area-based regeneration or placemaking initiatives (which have a habit of generating ripple effects when done well), and efforts to lure in footloose occupiers in growth sectors, which may in turn raise the level of investor interest. And, as we’ve argued before, it’s possibly not a coincidence that the cities which do well also have a strong record in higher educational outcomes.