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By Esha Vaish
June 10 (Reuters) - In Britain's regions, smaller investorsare securing discounted deals on commercial property asheavyweight funds put purchases on ice ahead of the referendumon EU membership.
Defying an investment lull in the capital, regional propertymarkets have been enlivened by private equity firms and othersmall investors taking advantage of reduced competition foroffice and retail space in cities such as Birmingham and Leeds.
These nimbler investors have less assets under managementand normally have less funds readily available to commit thanbig institutional investors such as insurance companies, pensionfunds and sovereign wealth funds. However, the currentuncertainty has opened up a window of opportunity.
"Most investors can't make any investment decision up untilthe Brexit vote," said David Pralong, founder of pan-Europeaninvestment advisory firm Maya Capital LLP. "This allowed us toget access to assets that would have been difficult to secureunder normal circumstances."
In the last few weeks, Maya has made successful offers forfour office premises costing a combined 50 million pounds ($72million).
The concern for some investors is that an "Out" vote couldend Britain's unlimited access to the world's largest tradingbloc, hurting growth and undermining London's status as the onlyfinancial capital to rival New York. Banks have beenparticularly vocal in warning this might force them to relocate.
By contrast, the largest occupiers of regional premises tendto be domestic companies and retailers that would be unlikely toshift in the event of Brexit, despite the business risks.
Property managers at Fidelity International and M&G RealEstate, a unit of insurer Prudential Plc, told Reutersthat their firms were continuing to invest in commercialproperty outside London ahead of the June 23 referendum.
To be sure, investment in the entire UK commercial propertymarket has cooled significantly. Property worth 16.1 billionpounds changed hands in the first four months of 2016, a far cryfrom 24.9 billion pounds a year earlier, according to PropertyData Ltd.
Andrew Hawkins, director of capital markets at propertyconsultant Jones Lang LaSalle, said he estimated up to a quarterof investors have postponed any deals until the result of thevote is known.
Some investors are also writing Brexit clauses intocontracts that would give them the right to walk away in theevent that Britain votes to leave the EU.
Despite this, the total value of regional commercialproperty deals in the first quarter, at 4.5 billion pounds ($6.5billion), was 6 percent above the quarterly average for the lastfive years, according to commercial property broker LambertSmith Hampton.
This contrasts sharply with London, where the value of dealswas 15 percent below the five-year average.
"We are quite actively investing in the UK, but in smallerand more regional assets that will be less impacted - if at all- by Brexit," said Rob Wilkinson, chief executive of propertyinvestment manager AEW Europe.
'SITTING ON THEIR HANDS'
Compared with a year earlier, the number of commercialproperty deals in both London and the regions has fallen.
But the reduction has been more pronounced in the capital: a31 percent drop, to 171 deals, versus a 21 percent decline inthe UK regions, where 552 deals were recorded in the first fivemonths of 2016, according to Property Data.
Many large institutional investors and funds, able to payhigh premiums to secure property deals, have been absent fromthe regions. This has opened the door for firms such as RegionalREIT Ltd, which recently made offers on two officepremises.
"The uncertainty around the upcoming EU referendum has manywould-be buyers sitting on their hands," said Stephen Inglis,property director for London & Scottish Investments Ltd, assetmanager to Regional REIT.
"We're seeing a softening of prices on properties up forsale in the regional office market."
Data also supports the theory that prices have fallen inregional markets.
Average prime yields on provincial offices rose 25 basispoints in March, data from real estate broker Savills Plc shows.
A higher yield indicates higher perceived risks associatedwith a purchase and generally translates to a lower deal priceas buyers pay less to offset the risk.
Private real estate fund manager Clearbell Capital LLP,meanwhile, snapped up an office complex in central England for25 percent less than it had originally bid after aninternational investor that had won the tender backed out of thedeal, founding partner Manish Chande said. ($1 = 0.6914 pounds) (Reporting by Esha Vaish in Bengaluru; Additional reporting bySinead Cruise and Ana Nicolaci da Costa in London; Editing byRobin Paxton and Toby Chopra)
