The value of income-producing properties outside London fell by 7.2 per cent between September 2011 and March but rose 7.4 per cent in the centre of the capital, as a double-dip recession prompted buyers to avoid all but the safest prime assets, according to Investment Property Databank (IPD). That pushed non-London yields, or income as a percentage of the price, to 6.5 per cent in March compared with 4.3 per cent in London's most expensive districts, IPD said.

"The shift away from core to a higher-risk mentality is the dominant trend I see in 2013 and 2014," Joe Valente, head of research and strategy at JPMorgan Asset Management, said. "Not everyone is well equipped to go up that risk curve."

That doesn't mean all markets are appealing. Investors are focused on properties with steady rental income or those that can be put to better use.

Few in the property industry predict that commercial property values outside the capital will appreciate meaningfully until the UK economy improves.

Pension funds and insurance companies like Legal & General and Aviva are hunting in larger regional cities such as Birmingham and Manchester, where the value of some properties has started to rise and the amount of empty space is lower than in previous recessions.

The Co-operative Group's headquarters in Manchester were bought by Chinese sovereign wealth fund Gingko Tree Investment and German fund Grundbesitz Europa in February.

The price was £142 million (HK$1.6 billion), said a source close to the deal. Gingko declined to comment. Billionaire George Soros' Quantum fund got a slice of the development market outside London when it bought 5.7 per cent of Development Securities in January and increased its stake to 6.8 per cent this month.

About 90 per cent of the developer and investor's income-producing assets are outside London, said its annual report.

Although average prices continue to fall outside London and Cambridge, there are pockets of growth. More than 30 per cent of non-London commercial properties tracked by IPD rose in the year to March, including top-tier warehouses in Manchester and shops in the best parts of Birmingham. Those assets gave investors returns that beat office buildings in the City of London financial district, IPD said.

Commercial properties in Leeds now produce an annual yield of about 7 per cent after prices fell about 42 per cent from their peak in 2007.

Broker Colliers International estimates that City of London yields are 5.25 per cent.

"In the first quarter, we saw a growing percentage of assets outside of London delivering flat or positive capital growth, and that trend has continued in April," Phil Tily, IPD managing director for the UK and Ireland, said.

"Hopefully, the recent economic news will lead to further confidence and selective recovery in the regions."

Bank of England Governor Mervyn King gave his most upbeat forecast for the UK economy in five years on May 16, raising growth estimates and lowering inflation projections.

Employment rose in the first quarter after the country narrowly avoided its third recession since 2008. And buying conditions across Britain are the best since 2002 as returns rise while the yield on 10-year gilts remains below 2 per cent, said broker DTZ.

"We're ready to take a bit of risk on income and buy assets that might need some capital expenditure," Ben Stirling, managing director of UK and mainland European real estate at Aviva Investors, said.

The manager of £274 billion of assets sees value in "good quality, institutional type of assets, which, depending on where you are in the cycle, are called prime or secondary," Stirling said.

Development Securities has achieved internal rates of return, a measure of performance used by private equity managers, of more than 20 per cent from its trading and development division by "regenerating functionally obsolete buildings and turning them into useful ones", CEO Michael Marx said.

The company converted a warehouse and office property into a supermarket as part of a development in Littlehampton in the southern county of Sussex.

It then sold the building to tenant William Morrison Supermarkets, bringing the internal rate of return to 27.2 per cent, Development Securities said.

Investors have stayed away from buildings outside London even though the UK's economic woes have resulted in fewer empty properties than in previous recessions, Valente and Peter Reilly, head of JPMorgan Asset Management's European real estate unit, said in a report.

Slightly more than 8 per cent of the space throughout the UK is empty, compared with more than 14 per cent in the recession in the early 1990s, the report said.

Demand from businesses for new space outside London has fallen 22 per cent compared with a 40 per cent fall in the early 2000s.

"The real estate market has not only overreacted, but is also lagging the gradual improvement in sentiment," they wrote.

"It is unrealistic to expect yield spreads to revert back to pre-2007 levels anytime soon, but neither is it sensible to expect them to remain at current levels."

Legal & General Property, the UK's third-largest institutional real estate fund manager, is raising a fund that will spend as much as £1 billion on buildings outside London. This year will be a turning point for the regions, Charlie Walker, the company's director of business development, said. "From a pricing point of view, there are higher entry yields and they are looking out of kilter with central London."

The fund will target assets valued at more than £50 million because some rivals will struggle to secure the funding required to bid above that level, reducing competition, Walker said.

The company will seek "distressed capital held by banks and funds in the wrong places that can't afford to keep it or, frankly, don't have the skill set to maintain the value".

Max James, chief executive officer of Quintain Estates & Development, is among investors who don't see potential for growth outside London as long as the economy struggles.

The company plans to sell its 25 regional properties to focus on large redevelopment projects in London and has yet to find a buyer for the assets it put on the market in September.

"We are struggling to see a significant correction" in regional property values, James said. "For the capital our shareholders have given us, we see far better returns in London than the regions."

Though most foreign investors are sticking to London, some are looking further afield.

Norges Bank Investment Management, the world's largest sovereign wealth fund, acquired a 50 per cent stake in the Meadowhall Shopping Centre in Sheffield, northern England, for £348 million in October. The net yield was about 5.1 per cent.

Marx, the Development Securities CEO, said overseas money wouldn't drive up prices in the regions like it has in London.

"Cheap capital being transported to the UK, mainly London, from the Far East will not go to places like Rotherham" in the northern county of Yorkshire, he said. "They might go to places like the centre of Manchester or a couple of big shopping centres, but that's as far as they go."