Copyright: David Lawson 1996
But the perception that stepping outside the M25 is a venture too risky for civilised chaps has been around too long too dismiss out of hand. Even today, after-dinner speakers can be sure of a round of applause from the hoary old joke: 'What do you call a fund manager north of Watford? Everyone choruses the answer: 'Scottish.'
Things are changing, however. The recession struck a mortal blow to the idea that you can't go wrong by putting money into central London offices and going to sleep for 25 years. Investors are more open to alternatives after burning their fingers so badly, says David Hutchings, head of investment research at Healey & Baker. London offices lost as much as 40% of their value in the crash. They remain heavily over-rented compared with many provincial centres where development and rents did not go so far or fast in the boom.
Another 'push' factor is the sheer problem with large lot sizes involved in London. These are attractive to only a restricted market, he says, a factor becoming more important as pension funds become paranoid about the need for liquidity under new legislation. Investors are also following an occupier trend out of the south-east. Relocation has built a critical mass of good covenants which have changed attitudes to provincial cities. The buildings themselves have risen to institutional standards in line with the demands of international occupiers. Political moves towards regional government could bring in even more.
The rise and rise of business and retail parks has been another key factor drawing money out of the golden metropolis. Legal & General recently spent more than £90m on buildings including the 10,400sq m (112,000 sq ft) Mercury House near Manchester Airport and five properties on Birmingham Business Park in a bid to shift its portfolio balance.
And there are those damned foreign Johnnies, leapfrogging over the south-east to snaffle regional assets. Makes a chap wonder whether he is missing something. Almost a quarter of foreign investment in the first nine months of this year went into the provinces, according to DTZ Debenham Thorpe - a whopping £337m. When CGI paid £35m for a shopping centre in Ashton-under-Lyne, it must have sent some UK funds scurrying to their atlases - not to track down the German fund's base but the exact location of Ashton.
The majority of overseas money still goes into London, but even that helps the provinces, says Hutchings. UK funds now have buyers willing to pay good prices. In the past, if they wished to transfer funds out to the regions, the illiquidity of the market meant taking lower prices - and dragging down general values, hitting assets they retain.
Big funds and more forward-thinking investors are generally more sophisticated nowadays than many of the old prejudices imply, however. They are increasingly using statistical techniques to back up gut instincts about where and when to invest - and these are revealing better performance can be achieved outside the south-east.
The Investment Property Databank has now been around long enough to provide a base for long-term calculations, says Angus McIntosh, head of research at Richard Ellis. This has also widened the scope for applications such as beta coefficients to test the risks as well as the returns involved in buying and selling.
Short-term investors such as property companies are using volatility measures to decide when to get into regions which are set to recover much faster. Funds can be left behind by the more nimble trader-developers but can use the same techniques to choose a low beta coefficient, indicating the longer-term stability they seek.
'This will never replace an anecdotal understanding of the market but adds an extra tool for decision-making,' says McIntosh.
Martin Moore, managing director of Prudential Portfolio Managers, insists that his managers have worked on this research-based approach for many years. But the scientific method is only now beginning to percolate down to smaller players who may still be blinded to relative advantages of looking beyond the obvious..
Adding the new dimension of risk has thrown a new light on market sectors and the regions, according to a study by Fuller Peiser Research. An analysis of IPD data between 1980 and 1994 reveals that offices were the most risky investment, showing both lowest total and risk-adjusted returns.
"And the further away investment is from London, the greater the investment rewards," says the report. In the office sector, for instance, the Midlands and North had the highest risk-adjusted returns. These regions and Scotland also showed the lowest volatility in returns.
Nick Wilson, an analyst with Fletcher King, is still sceptical about the quality of material used in making investment decisions, however. He accepts that investors are becoming more receptive after burning their fingers in London during the crash - and weary of hearing the same tune about rent rises several years in a row. But he points out that diversification requires more than just an intimate knowledge of the IPD database.
Detailed local information is vital, says Wilson. And he is not convinced that some of the regional models are sufficiently robust. 'These can include economies which are totally unrelated,' he says. 'In the west Midlands, for instance, some are heavily reliant on the fortunes of the car industry while others are not.' He would prefer to see information on individual towns - perhaps the top 300 office centres, top 200 industrial ones and a thousand retail markets.
These must also be backed up by figures on internal rates of return, local economic analysis and historical rent patterns - all updated at six-monthly intervals. This would reveal where rents were ticking along below their potential, providing an opportunity for future performance - and the sustainability of increases.
Not everyone is convinced by the use of statistical methods as a basis for sending money winging out into the provinces. John Heatherington, an analyst with Chesterton, says some of the underlying assumptions of methods such as beta coefficients are not universally accepted.
Allocating between regions would also make sense only if local economies were vastly different. 'There would be little point in investing in two regions like the south-west and east Anglia, where defence spending formed a major part of the economy,' he says. Yields can also be a problem. Central London changes automatically produce pro-rata moves in the provinces, negating diversification benefits, says Heatherington. There is still a case for choosing between London and the provinces but he sees more sense in sectors such as retail diversifying across town types such as regional centres, seaside resorts, etc, regardless of the region.
Moore also looks for a more delicate brush in painting the north-south picture. He admits to a preference for central London in potential future performance but that has not prevented a long-term commitment to the regions and an administrative structure based around regional teams. 'It raised eyebrows when we went into Cwmbran a few years ago - a place many had never heard of. But you can only get extra performance by judging local factors.'
Variations within the provinces are important. 'You only have to look at in-town rents compared with those outside. Five years ago, town centres were in the lead. Now the position has reversed, with business parks moving strongly ahead.'
The overall mood, however, is that a the regions have come of age for investors. Hutchings sums it up as a combination of poor London performance, ability to sell out to overseas investors, better relative performance from the provinces and the statistical methods to reveal that gap.
'The maturing of the property market and the increase use of more sophisticated methods of analysis and appraisal mean that markets which are somewhat less liquid and active than, say, high street retail and London offices may now be more acceptable, since investors are in a better position to appraise the risks and returns involved,' he says. It seems that after-dinner speakers will have to find a new source for their jokes.