Moody’s: UK Government’s Northern Powerhouse initiative is credit positive for region’s prime office market

London, 17 May 2017 — The United Kingdom (UK) government’s proposed Northern Powerhouse initiative of boosting Northern England’s local economy is credit positive for the region’s prime office market, says Moody’s Investors Service in a report published today.

Moody’s report, entitled “CRE Office/CMBS – United Kingdom; Northern Powerhouse Initiative is Credit Positive for the Region’s Prime Office Market,” is available on The rating agency’s report does not constitute a rating action.

“Overseas investors are showing particular interest in the Northern Powerhouse, investing in regional office space outside of London,” says Thomas Rahman, Assistant Vice President and Analyst at Moody’s. “This comes amid uncertainty over the outlook for the capital’s occupational office market, as well as Sterling’s weakness.”

A comparison of current yields among the Northern Powerhouse cities shows they are still above pre-crisis levels as compared to Central London, suggesting that investors in search of yield pick-up would be attracted to these regional cities.

Cities within the Northern Powerhouse are also attractive because of relatively lower occupancy costs. Following the Brexit referendum, occupational market activity has shown continued rental growth and a shortage of quality supply, particularly in Manchester and Leeds.

“With business rate revaluations coming into effect this year, we expect the cost benefit for London-based companies moving employees to the North of England to become more accentuated,” says Tobias Venzke, another Assistant Vice President and Analyst at Moody’s .

A further boost for regional office demand is public sector demand for space. The UK government is implementing a new cost driven approach to real estate asset management, which will result in a shift of civil service employment away from London to 16 new super hubs, including Liverpool, Manchester, Sheffield and Leeds.

In addition, a number of large infrastructure/transportation projects are underway or due to start, including the construction of the High Speed 2 rail route and the upgrade of Manchester Airport.