UK regions rival London for investment prospects

4 May 2017

Amid rising confidence in the investment prospects of the UK’s regional cities, IP Global’s Roxanne O’Fee gives her insight into the growing potential of Birmingham, Manchester and Liverpool.

London frequently tops the list of desired property markets in the UK for foreign investment. Recently however, attention has shifted to regional cities, igniting a genuine economic counterbalance to the capital.

IP Global prides itself on blazing a trail; launching investment opportunities in emerging areas and cities with budding potential. While we still believe in London – particularly in undervalued areas such as Croydon and towns such as Ilford and Woolwich that will soon be connected by the Elizabeth Line – we are widening our net to offer opportunities in some of the UK’s other cities.

What’s driving this? Value is undoubtedly a key factor. No one doubts that parts of prime central London have become unaffordable. While in Manchester, average house prices are 66% lower than London.

The second key driver is yield. Rents are rising in all three cities – as housing supply struggles to keep pace with demand due to a soaring population of professionals working in diverse and growing industries.

The third factor is future uplift potential, driven by historic levels of regeneration investment – particularly into transport infrastructure such as High Speed 2 (HS2), which will reduce Birmingham to London journey times to just 49 minutes. High Speed 3 (HS3) – a core element of the government’s GBP7 billion Northern Powerhouse vision – will connect up the major economies of the North and bring Manchester within 20 minutes of Liverpool.

Taking a closer look at these two neighbours, it is no secret that ever since former Chancellor George Osborne first introduced the Northern Powerhouse proposal to boost economic growth in the North of England back in 2014, investment has skyrocketed. Following Prime Minister Theresa May recently committing a further GBP556 million with a vision to “drive growth across the whole of the UK”, this upward trend is set to continue.

The North, now recognised globally as an area for investment and responsible for generating 19% of UK GDP, is comprised of five of the UK’s ten largest cities, seven international airports, over one million businesses and over fifteen million people. This strong economic and demographic growth has attracted investors globally, particularly in the property sector.

Manchester has no shortage of interest from overseas investors from the likes of North America, Europe and Asia. 2017 has already seen the completion of many high-profile development deals. Beijing Construction Engineering Group (BCEG) has invested GBP700 million in Middlewood Locks in Salford and work has also begun on the GBP1 billion development of Airport City. This has led Manchester to open up its links with China with three new direct air routes to the country driving the economic relationship between the two.

For residential property investors, this surge of development in Manchester spells good news. In fact, Chinese enquiries for investment properties in Manchester have jumped by more than 50% from January 2016 to the same time this year. Investors can expect to see yields of over 6%, making it an increasingly attractive opportunity.

However, for all Manchester’s success, Liverpool has recorded the strongest growth in the last two years, according to the ONS. The city has the second fastest growing digital and creative sectors in the UK and is home to businesses worth more than GBP121 billion and its growth shows no signs of slowing. In fact, by 2020 these business sectors are set to expand by 119% which will create 100,000 new jobs, 20,000 new businesses and push the city’s 83,000 population to 1.6 million by 2040.

Looking forward, there is plenty of investment and regeneration planned in Liverpool and demand remains strong. From June to September 2016, Liverpool property prices grew by 6% and rental yields are some of the highest in the UK at up to 7%. This has led to the city being crowned one of the best buy-to-let cities in the UK by LendInvest.

Further south of these two cities sits West Midlands giant Birmingham – the UK’s largest city after London by population. Its central location means that 90% of the UK population is within four hours of the city, which is home to over 1.1 million people alone.

From beginnings in manufacturing and heavy industry, Birmingham has already taken strides to diversify its economy and is now home to over 75,000 companies including 1,190 international firms. This represents the largest concentration of businesses outside of London – a cohort which includes Jaguar Land Rover to Deutsche Bank to Mondelez International.

The city is open for business and attracting considerable inward investment. In 2016 there was a 37% increase in business start-ups while the period between 2011 and 2015 saw foreign direct investment rise by 243%. Over 50,000 new city centre jobs will be created by 2030.

As mentioned above, a key driver of Birmingham’s future growth is the upgrade of the UK’s national rail network. HS2 will bring London within 49 minutes and significantly cut journey times to Edinburgh, Newcastle and Manchester. The city is home to HS2’s construction headquarters, so between phase 1 which starts later this year and project completion in 2032, over 1,500 jobs will be created in the city. The project is also stimulating local regeneration around the future station itself and is expected to deliver a GBP1.3 billion boost for local economy.

What does this all mean for Birmingham’s property market? Over 30,000 new homes are needed by 2031 to meet projected demand, and construction needs to start accelerating to create any real chance of meeting this. Only one residential development started on site in 2015 while 2016 saw 10 break ground.

Meanwhile the population continues to expand, with 12.2% more people expected to call Birmingham home between 2012 and 2032. This influx is driven by the employment opportunities and lifestyle on offer in this cosmopolitan city and the draw is getting ever-stronger – it is estimated that more than 6,000 people left London for Birmingham in 2015.

All this adds up to excellent projections for property price growth in the city. The period between 2014 and 2016 saw Birmingham property prices grow by 11.4% and looking ahead, 21.7% capital growth is expected between 2017 and 2021. High demand for rental accommodation also saw average rents increase by 3.2% in 2016, while further rental growth of 17.6% is forecast between 2017 and 2021.

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Looking beyond London

As demand continues to rise across the UK’s regional cities, we’re seeing some very attractive opportunities for investors to enter these burgeoning markets. Our key focus is to search for pockets of value that demonstrate significant potential for future uplift. Each location has its unique investment case. In Manchester, the extension of the city centre and CBD is creating exciting opportunities in new areas whereas in Liverpool we’ve seen stunning city centre conversions such as The Levels, located in the grade-II* listed Tower Building which sold out within days of launch in January. Birmingham is presenting similar opportunities – with the growing trend for city centre living driving investors to focus in on this area.

The evidence is clear. The UK’s regional cities are on the rise with no signs of slowing down.


 

Roxanne O’Fee Kelly

Written by Roxanne O’Fee Kelly

Roxanne is an Investment Manager specialising in the UK market for IP Global. Since 2014, she has had exposure to the US, European and Asia-Pacific markets and sourced several landmark projects. She has grown the company’s UK portfolio with her investment expertise and analysis of the country’s different regions including London, northern England and Scotland. In 2017 alone, Roxanne sourced investments worth USD100 million and has delivered some of IP Global’s most successful projects, particularly in Manchester.

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