20/04/2018 by Robin Gregson
Focus on Birmingham
In recent weeks, much of our editorial focus has been on the big growth markets of the North West, but it's important not to overlook another of the UK's property success stories: the West Midlands. Here - and especially in Birmingham - property investors can find some excellent trend-busting deals.
Strong Average Values
The Midlands as a whole appears to have weathered the economic storm very well. Although many parts of the UK have seen average prices slow, values in the East and West Midlands have continued to make solid gains. This was noted in LendInvest's Buy-to-Let Index Report for March 2018, which noted that "The Midlands has shown itself to be wholly resilient to the house price growth slowdown, with cities Birmingham, Northampton and Leicester (all) landing a place in our LendInvest BTL Index Top 5 this quarter."
To put that in context, the report noted that many parts of the South East had seen dramatic falls in the average rate of growth over the past six months. Dartford, for example, saw a negative change of 66%, and East London saw the rate fall by 48%. (Note that these are changes in the rate of growth, not absolute values.) By contrast, Birmingham came second in the league table of those areas least affected by a deceleration in price growth. Here, rather than a fall, Birmingham achieved a positive change of +35% - a rate only bettered by Truro in the South West.
Yields and Rental Growth
Of course, property investors do not judge success purely in terms of capital gains. For many, the principal measure is that of yield - essentially, how hard one's investment money is working. In this respect, the West Midlands again produce good results, with Birmingham coming in at number 5 in LendInvest's list of 'Top 10 buy-to-let postcodes.' Of all the listed destinations, only Manchester exceeded Birmingham's average yields of 4.6%. The same report found that Birmingham delivered average capital gains of 6.7% and rental price growth of 3.91% - both comfortably ahead of national averages. Indeed, for rental price
growth, Birmingham ranks seventh in the whole country.
In short, Birmingham is performing well on all key measures.
The obvious question is: why?
Inward Investment and Regeneration
Like other investment hotspots such as Manchester and Liverpool, Birmingham is attracting a large amount of investment from both the public and private sectors.
Major new transport projects include New Street Gateway, the city centre Metro and Birmingham Airport, all of which will enhance Birmingham's appeal as a central, well-connected base for internationally minded businesses. Additionally, the city will benefit from HS2 rail links, which will put London just 49 minutes away by train, rather than the 1 hour 22 minutes it takes at present.
HS2 has also kick-started other important regeneration works, including a £600 million renovation scheme at Birmingham New Street station, which was completed in 2015. HS2 is also at the heart of the £900 million Curzon Investment Plan, which will regenerate the area surrounding a proposed new Curzon Street station.
However, Birmingham's renaissance is not only about transport infrastructure. Birmingham City Council's Birmingham Development Plan (BDP) 2031 sets out an ambitious programme for construction and economic growth that will see the creation of large amounts of modern retail and office space. This will complement a raft of other schemes already underway.
New and ongoing projects in 2018 include:
1 Centenary Square. This impressive ten-storey office will shortly become home to 4,000 HSBC UK staff, following the bank's decision to relocate its retail and business operations to Birmingham. A £200 million
project, it will help to underscore the city's credentials as an emerging financial powerhouse. Other companies that have recently moved into the area include Barclays, Deutsche Bank and RBS.
Arena Central. This is the broader 3.7 hectare site on which 1 Centenary Square sits. It is also occupied by a Holiday Inn Express, which opened in 2017, and it will soon feature a further four residential and office developments.
Paradise Project. This £700 million development project will see the construction of an array of new office properties, the first of which - One Chamberlain Square - is scheduled to open in the summer 2019. An agreement has already been reached under which the accountancy firm PwC will take all the property's office space.
A sister property - Two Chamberlain Square - is also scheduled for completion the same year. Regarded as one of the UK's most important urban regeneration schemes, Paradise will ultimately deliver offices, shops, bars, cafés, restaurants and a new hotel.
Axis Square. Plans for this office development were announced in 2017. They include the construction of four office blocks in two phases, together with new shops, restaurants and a proposed new public square.
Besides these, Birmingham will also witness the opening of a new £45 million hotel and the launch of many other projects including the new Primark Pavilions retail regeneration scheme, and a £450 million canal-side redevelopment project, which will create a wide array of hospitality, retail and leisure facilities.
Such large scale investment by both businesses and public bodies is sure to have a profound effect on the local economy and, thus, the growth of local employment. As more workers are drawn to the area by the promise of jobs, demand for good rental accommodation is likely to soar.
Population and Affordability:
Property demand is already benefiting from a growth in population and jobs. The economy is growing faster than the UK national average and, in the twelve months to June 2017, employment in the city rose by a massive 110,000 - the largest regional rise anywhere in Britain. Moreover, the city council expects Birmingham's population to rise by 150,000 between now and 2031, which will raise demand for property still further.
Birmingham has an unusually young population and it is also boasts the UK’s second largest student body. The number of students living here continues to grow and, given the relatively low cost of living, this is a trend likely to continue well into the next decade.
A low cost of living extends to rental and property prices, too. Although average values are rising far more quickly than the national average, that's at least partly because they are starting from a lower base and, thus, they have more room to rise. According to the Office for National Statistics, the average house price in the West Midlands was around £191,000 in December 2017, compared against £484,000 in London.
Rightmove's figures for March 2018 differ but they show the same stark imbalance: average prices in the West Midlands stand at just under £220,000 while prices in London are closer to £632,000.
Following the same pattern, average rentals are much more affordable in Birmingham and its surrounding region. According to HomeLet, average rents stood at £674 inJanuary 2018, while in London, they were £1532.
Birmingham is therefore becoming a magnet for workers, students and others looking for a more affordable lifestyle. For the same economic reasons, the city promises investors healthy demand and equally healthy yields.
The Emerging Trends in Real Estate 2017 report named Birmingham as one of Europe’s most attractive investment destinations and the single most promising property market in the whole of the UK. In a similar vein, professional services firm Ernst & Young recently predicted that, outside of London and the South East, the West Midlands would be "the fastest growing region of the UK leading up to 2020, with growth underpinned by strong performance in the real estate and business services sectors."
As the focus for massive new investment programmes and a steadily rising population, Birmingham represents an opportunity that buy-to-let investors should seriously consider.