For most property investors, the U.K. is a country with one city.

Private-equity firms, pension funds and millionaires from Russia to Qatar spent more on real estate in London than the rest of the country for the first time last year, lifting values there while prices elsewhere sank. Now investors such as Legal & General Group Plc (LGEN) and Aviva (AV/) Plc are being attracted by higher returns available from cheaper real estate outside the capital.

The value of income-producing properties outside London fell 7.2 percent from September 2011 through March while rising 7.4 percent in the city’s center, as a double-dip recession prompted buyers to avoid all but the safest prime assets, according to Investment Property Databank Ltd. That pushed non-London yields, or income as a percentage of the price, to 6.5 percent in March compared with 4.3 percent in London’s most expensive districts, IPD said.

“The shift away from core to a higher-risk mentality is the dominant trend that I see in 2013 and 2014,” Joe Valente, head of research and strategy at JPMorgan Asset Management, said in an interview. “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 U.K. economy improves.

Birmingham, Manchester

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 Ltd.’s headquarters in Manchester was bought by Chinese sovereign wealth fund Gingko Tree Investment and German fund Grundbesitz Europa in February, a person with knowledge of the deal said. The price was 142 million pounds ($216 million), according to the person, who asked not to be identified because the matter is private. Gingko declined to comment.

Billionaire George Soros’s Quantum fund got a slice of the development market outside London when it bought 5.7 percent of Development Securities Plc (DSC) in January and increased its stake to 6.8 percent this month, according to stock exchange filings. About 90 percent of the developer and property investor’s income-producing assets are outside London, according to its annual report

Investors Exit London for Cities Led by Birmingham: Real Estate – Businessweek.