Just like the weather at this year's Mipim conference in Cannes, which ended in sunshine, property professionals at the world's largest real estate summit are forecasting a brighter second half of the year for the UK investment market.
"Noise" in the form of rising gilt yields and the change of administration in the United States and resulting tariffs, has hit investment sentiment after what was a strong end to last year for many.
But large real estate projects, such as the regeneration of the area around Manchester United Football Club's iconic Old Trafford Stadium and forecasts of additional interest rate cuts ahead are providing some confidence among those working in UK regions.
CoStar News met with a wide variety of real estate professionals at the conference to discuss leasing, development and investment trends in the regions, and what we can expect from 2025.
'Bigger than London 2012'
It's rare that a UK regional city rises to the top of the Mipim agenda, but that changed this year when Premier League football club Manchester United announced plans to build a brand new 100,000-seater stadium as part of a wider regeneration of the Old Trafford area.
The £2 billion stadium, which could be delivered in as little as five years, will be the centrepiece of a new sustainable district in the south west of Greater Manchester, previously industrial.
According to Lord Norman Foster, the founder and executive chairman of Foster + Partners, the architecture group appointed to design the stadium district, the Old Trafford Regeneration zone will be a "mixed-use, mini-city", with 17,000 homes and a large public plaza complementing the new "Theatre of Dreams".
Speaking at a session on the Old Trafford Regeneration project on Wednesday lunchtime, Lord Sebastian Coe, chair of the Old Trafford Regeneration Task Force, dubbed it the largest regeneration project in Europe, arguing it could have a bigger impact than the London 2012 project in Stratford.
Andy Burnham, the Mayor of Greater Manchester, said the wider regeneration project represented a "remaking of the North of England in the 21st century", giving it a focal point for visitors all around the world. He added that it would also have a ripple effect on surrounding cities, such as Liverpool.
"It's at the heart of our 10-year investment pipeline that we are putting forward in our prospectus at Mipim this year, it's a huge part of that.
"But we've got to remember that there's an existing community that live close by to this stadium and it's got to work for them, and bring benefit in terms of public space and green space.
"To hear Lord Sebastian Coe say that the regeneration impact of the new Old Trafford could be bigger than London 2012, that is a huge statement and it should be heard very clearly. The benefits of this could be felt right across the North West of England, indeed the country."
Burnham stressed that the new stadium, which advisory firm Oxford Economics suggests could deliver an additional £7.3 billion per year to the UK economy, would be funded entirely by the Premier League club, with the sports team choosing one of the biggest investment stages to begin its hunt for partners.
Regional markets divergence
Manchester, along with Bristol and Edinburgh, was one of three regional cities being talked up by UK property experts at this year's conference, particularly in the office sector where a divergence of markets is emerging.
All three recorded particularly strong rental growth last year, achieving £45 per square foot or above. Paul Broad, managing director of the national offices team at Avison Young, told CoStar News that the sentiment in the regional leasing market has picked up on previous years.
He said this was demonstrated by an increase in the number of larger deals, such as BNY's 200,000-square-foot letting in Manchester last year.
"In 2023, we had five deals over 50,000 square feet across the UK and in 2024 we had 15 deals larger than 50,000 square feet across the UK.
"The sentiment in the market is very much about growth, and occupiers are realising that they have actually underestimated the amount of space that they need.
"Now they are starting to recruit and people are coming back and [saying] it's really tight and we need some space. It's really, exciting because we have not had those types of conversations for a long."
Broad, whose promotion to head of national offices was announced the week before Mipim, read here, highlighted Newcastle as a city performing strongly, particularly for prelets.
It comes after news that the Reuben brothers secured the Department of Work and Pensions for a prelet of all 173,245 square feet of Pilgrim Place 1 over nine storeys in the city centre, read here.
However, the challenge with the regional occupier market, according to Broad, is the lack of stock, with 37% of the 2 million square feet of offices already under construction prelet and speculative development lacking.
He said this could lead to slower letting volumes in 2026 and 2027, but expects 2025 to be a good year for deals. "The occupational demand is building to a point now where occupiers are having to stay where they are and renew short-term because there is no product.
"So it's this Catch-22, the occupational demand is there if you can supply the product, but no lenders are confident enough to step into that. It's coming, you can feel it, you see the wave coming up from London and we're probably at Manchester about now."
Rates cut hopes
A lack of stock is also a challenge for the regional office investment market, according to Savills' head of Scotland, Nick Penny.
He labelled the beginning of this year for investment as "quite quiet" despite there being continued demand for prime assets that are well let, have good sustainability credentials and "demonstrable rental growth".
Penny points towards the £42.5 million acquisition of The Mint in Edinburgh by Pontegadea in the third quarter of last year as a typical deal being sought by investors in the regions, adding another interest rates cut could make all the difference to regional investment volumes in the year ahead.
"We started this year with a gentle bit of momentum, having seen a bit more activity in the second half of 2024, and then with a spike in treasury and gilt rates and the change of leadership at the White House, the easy thing for a lot of investors to do has been to sit on their hands.
"But further interest rate cuts that have been projected by some commentators and banks this year, that hopefully will be a good thing for the market and bring a slightly different buyer pool back into play."
Khaled Alanani, head of alternative investments at Bank of London and The Middle East, agreed that additional bank rate cuts would help to increase deal volumes for offices as well as across other sectors.
"For the regions to be attractive again, we need interest rate drops. Without drops in the rate, it is still very difficult to justify because investors will be a lot more opportunistic when their cost of capital goes down, but if it remains high, you want to stay as safe as possible, and that tends to be core locations, like London," he said.
Alanani added that the investment market needs to see more stability across business confidence, geopolitics and fiscal events, to see higher volumes of sales by the end of this year. But he said there are still question marks over what inflation will do, adding that "trade wars" won't help.
Alanani suggested that the regions could benefit from the tariffs being imposed by Donald Trump on imports into the United States, with the UK and Europe becoming a more attractive destination for global business.
"Traditionally when times are volatile the regions get less investment than London and the core market but, if there is more confidence in the country as a whole, you would expect to see more investment flow across the board."
Gilt yield impact
One part of the real estate industry that will have a particular eye on tariffs is the industrial and logistics sector, with many occupiers leasing large warehouses to process and hold materials and goods, such as steel and aluminium.
Ed Cornwell, partner in Cushman & Wakefield's logistics and industrial capital markets team, also pointed out that there was "absolute momentum in the market" during the last quarter of 2024, with competitive tension across a number of sub-sectors, including last-mile, regional multi-let, London multi-let and single-let logistics.
Investment into the big-box sector also returned, he said, after being absent for a couple of years. Cornwell said the big-box market could be an area of focus for investors this year, with a feeling in the market that investment vehicles are ready to deploy capital after successful raises.
"There is more capital now than there ever has been looking at UK industrial and logistics. Historically, it has been North American private equity driving the market, now potentially we are seeing Far Eastern money: it's not quite ready yet but you can feel that it's coming."
Cornwell said Manchester, along with London and the South East, will be a key focus for a number of investors due to "tight supply" around the area and its position as one of the biggest consumer locations.
But he suggested investors were still waiting for the right conditions to increase their spending on industrial and logistics properties, with the UK gilt rate having moved in the wrong direction at the beginning of the year.
He said: "The result of that is that vendors' aspirations are hardening while purchasers are having to think a little bit harder and be absolutely confident in the product and what they are trying to create.
"It's not lack of conviction in the sector, it's not lack of confidence, it's just a pricing metric, that just needs to work itself through, but everybody believes life is going to get better and the price of debt is going to come down."
Midlands stronghold
In the months leading up to Mipim, the Chancellor announced a partnership between global logistics giant Prologis and East Midlands Airport to build an advanced manufacturing park in the East Midlands Freeport zone to unlock £1 billion of investment and 2,000 jobs.
Manchester Airports Group, which owns and operates East Midlands Airport, confirmed Prologis as its partner to take forward the development of the new industrial logistics and advanced manufacturing park.
Paul Weston, regional head of Prologis UK, told CoStar News that the January deal would help the group to increase its footprint in the East Midlands, while he also talked up the benefits of developing in a Freeport Zone, which comes with tax incentives.
He said the Midlands, which accounted for more than half of industrial leasing in the first half of last year, will always have a steady flow of enquiries due to its location and its reputation as the home of regional and national distribution in the UK.
Weston said leasing in 2025 felt "busier", with enquiries up about 30%. But he said the group would have to wait and see whether these translated into deals. But he said the take-up of 'grey space' so far this year was one of a number of "reasons to be cheerful".
"For us, activity is up across the board... London is the harder market. The North West is presenting some good opportunities because of lack of supply."
Data centre opportunities
Another large investment opportunity being exhibited in Cannes is Atlantic Wharf in Wales, a £1 billion gross development value mixed-use regeneration scheme near Cardiff city centre.
Led by the Cardiff Capital Region group, a collection of 10 local authorities, it is the latest scheme which is contributing to the development of the Welsh capital, which has already experienced the delivery of other major projects like Central Square, an office-led development including buildings such as The Interchange.
Councillor Mary Ann Brocklesby, Cardiff Capital Region chair and leader of Monmouthshire County Council, told CoStar News that CCR's track record of delivering high-end projects was helping its investment appeal, attracting interest recently from groups like Deutsche Bank and a Canadian pension fund.
Looking ahead, Brocklesby said former industrial sites in the region also offered opportunities for data centre schemes due to the resident power at some of the sites. This includes at the £500 million GDV Aberthaw Power Station, a decommissioned site set to be at the forefront of the region's energy production.
She said: "From our masterplan, we think the quick wins will set up the energy needs for a data centre there, which can serve the whole region, and also around energy generation, which could be anything from solar wind to tidal [energy].
"That is hugely exciting and on the cusp now of starting to deliver having bought it at the end of 2022. That's not bad given the whole former power station has to be dismantled."
Rennie Dalrymple, managing director at built environment consultancy Ridge, said data centres were making their way from the alternatives investment scene to the mainstream, with established investors buying sites and continuing to look for more.
Dalrymple said: "A few years ago, you'd have no data centre coverage at Mipim. But as it becomes a bit more of a mainstream asset class, you are seeing some major funds at an institutional level and at private equity.
"We notice in our world that there is a tremendous amount of new entrants coming in, and that might be in the pure sense of people looking at data centres, or people leveraging logistics estates into that space."
He said that outside of London and the South East in places like Slough, it was areas like Wales, Scotland and Manchester that could be considered for data centre schemes. But he added a couple of key factors would drive future developments in the regions.
"Power is the thing, but other things to consider are the political and economic climate in a particular region."