Institutional investors have launched a regional commercial property fund to capitalise on the short supply of premises outside of London.
It comes as the Royal Institute of Chartered Surveyors (RICS) predicted businesses rents will rise by more than four per cent in the next 12 months due to a dearth of suitable properties.
Yesterday, Toscafund and London & Scottish Investments launched the Regional REIT (Real Estate Investment Trust), which will list on London Stock Exchange on November 6 with a market capitalisation of £274.2m.
REITs are listed firms with special tax status that manage properties on behalf of investors without paying tax on rental profits.
The newly-incorporated trust, which has a 128-property portfolio worth £386m as of June 30, will target a seven to eight per cent dividend yield on share price of £1, driven by 10 to 15 per cent annual property returns.
London & Scottish Investments will act as asset manager to the fund, while Toscafund - which has long championed the potential for the North to bridge the gap with the South - will act as investment manager.
Together, the assets have rental income of £37.2m per annum within the REIT’s portfolio, reflecting a 9.1 per cent yield.
The Regional REIT will have a “strong focus on income from investing in UK commercial property, predominantly in the office and industrial sectors in major regional centres and urban areas outside London”, it said.
London & Scottish’s Stephen Inglis, who is chief investment officer of the REIT, said: “There is a structural lack of supply for quality office and industrial space in the major UK business areas outside of London - the areas showing the strongest signs of growth as the economy continues to improve. This, alongside our experience and knowledge of the market, presents us with an opportunity to create sustainable income and strong capital returns for our investors.”
Of the 128 properties included in the portfolio, 12 are based in Yorkshire and the Humber, equating to around £42.5m, or 11 per cent of the portfolio value, a spokeswoman for the REIT said.
Scotland is home to 51 of the properties worth £136.5m, while 22 are based in the Midlands and make up £65.6m of the portfolio.
Kevin McGrath, who has been appointed chairman of the Regional REIT and also chairs the board at M&M Property Asset Management, said the trust has received “encouraging” support from shareholders.
He said: “This underlines our belief in the exciting prospects for regional commercial property in the UK, and is a reflection of the management team’s experience and expertise in this market.”
The REIT highlighted research from DTZ which predicted a 2.3 per cent growth in rental prices for regional commercial property year-on-year for the next five years.
Research from RICS has suggested prices in Yorkshire and the Humber could climb four per cent in the next 12 months.
Toscafund has long promoted the opportunity for growth away from London and the South East.
In a December 2013 report, it pointed to immigration, car-making and UK universities as key drivers of economic growth, and challenged the idea the UK’s economic recovery would be driven by the South.