In part one of the best places to invest in property, we pointed out that different investors seek different goals, but one of the most common goals is to maximise capital growth. In a property market that has been relatively subdued in recent years, house price inflation has slowed across the country, so rapid appreciation has been very hard to achieve. Nevertheless, there are towns and cities where growth has been steady and rewarding, and some of the best of these have included Liverpool, Birmingham, Cambridge, Glasgow and Leicester.
If capital growth is your principal objective, then it would certainly be worth reviewing part one of this article, but please also read on. In this part, we'll be looking firstly at locations that have been offering some of the country's best yields, then going on to investigate areas where good yields and good price growth have both been achieved.
The Best Places to Invest in Property - Investing for Yield
We've written a lot about yield over the course of 2019, and with good reason. Yield is essentially a measure of how hard your investment money is working and it’s important to consider when looking for the best places to invest in property
Yield is calculated by dividing annual rental income by the property value and then expressing that as a percentage. In central London, rental values are high but so too are property purchase prices, so yields in London and other highly-priced markets have tended to be much lower than in areas where property is more affordable.
TotallyMoney publishes a very useful annual guide - its UK Buy-to-Let Yield Map - which lists yields, property prices, average rentals and more for every outcode in England, Scotland and Wales. (The outcode is the first part of a UK postcode.) Its map is based on data from approximately 500,000 properties, so it gives a helpful indication of sub-regional market performance.
Alongside its 2019/2020 data, it publishes a summary of the 25 best-performing areas for buy-to-let investment. Its top five include:
Liverpool L1: 10% yield
Falkirk FK3: 9.51% yield
Glasgow G52: 8.71% yield
Liverpool L11: 8.67% yield
Cleveland TS1: 8.5% yield
The Best of Both Worlds
Looking further down the same list, there is an interesting overlap between these 'high yield' cities and the 'high capital growth' areas we mentioned earlier. A total of six Liverpool outcodes appear in the top 25 for yield, Glasgow gives us five more, and Leicester LE1 comes in at position number eight, with yields of exactly 8%.
For investors looking for a balance between good yields and good prospects for capital growth, the current market data would suggest including these three cities in any shortlist for further study.
We'll look at these three locations in a moment, but it's worth pausing to reiterate that these are all still just headline figures; simple averages. Not every property in the L1 postcode will be delivering yields of 10%, any more than every property in bottom-of-the-table St Albans will be delivering a yield of 1.95%.
It's also worth reminding ourselves that all market data is necessarily backward-looking, and just because a particular area has delivered a particular result this year, it doesn't follow that it will do so again in 2020.
We are examining the following three locations simply because they have performed well in 2019 and they feature on two separate lists. But that's not to imply that there won't be many excellent individual opportunities in other parts of the UK. In previous articles, we've put a spotlight on numerous areas, from Manchester to Sunderland, Birmingham to Reading, and they all have their particular strengths and attractions. It's important to remember what these broad generalisations are about - and that's simply to help some investors, with particular priorities, to narrow the field of their searches.
Why is Liverpool one of the best places to invest in property?
Liverpool has seen a huge and prolonged economic revival since the dark days of the 1980s. Now, it is an undoubted economic powerhouse that is spawning new high-value businesses, countless new jobs and future-focused industries that should fuel growth for decades to come.
This time last year, the Office for National Statistics published data showing that economic growth across the Liverpool City Region was higher than that of any other Combined Authority area in England. The city centre alone has witnessed more than £2.5 billion of growth.
The city is benefiting from massive investment in business, industry and infrastructure. More than £30 billion of developments are now in progress and there are more in the pipeline. One of the biggest of these is the proposed Liverpool Waters development, led by the Peel Group. Worth an estimated £5.5 billion, this massive waterfront project will feature hotels, retail premises and 50-storey skyscrapers. It is expected to create up to 20,000 new jobs.
More generally, Liverpool has big ambitions. It is seeking to grow its economy to £50 billion by 2040, and to increase employment by at least 100,000. This will help boost already buoyant demand for tenancies, and the rental market will receive a further boost from the natural growth of the population, which is expected to grow by 50,000 over the same period.
For investors, this is all excellent news, as is the presence of a large student population. Liverpool and its surrounds host a total of four universities: The University of Liverpool, Liverpool John Moores,
Liverpool Hope, and Edge Hill. Collectively, they attract 90,000 students every year. This helps to sustain a thriving and predictable rental market, especially in some of the city's best-performing postcodes.
Why is Glasgow one of the best places to invest in property?
Glasgow and Liverpool share an important characteristic when it comes to yield appeal. Both are characterised by relatively affordable properties - i.e. prices well below the UK-wide average.
In the G52 outcode district, where yields were reportedly 8.52%, TotallyMoney records that median property values were £82,000. In G51, where yields are averaging at 7.32%, median values were £97,500. To put that in context, ONS estimates that the average UK house price in September 2019 was £234,000. For G52, that's a price difference of £152,000.
Readily affordable properties make up one half of the equation in Glasgow. Modest but healthy rental returns make up the other. In both G51 and G52, the average monthly rental was £595, and in G13, where prices are a slightly weightier £119,000, monthly rental incomes were averaging £670.
The mathematics are simple enough, but there is considerably more to Glasgow than affordable prices. It has a strong economy and it is Scotland's single largest city. According to Glasgow City Council, it generated £41.4 billion GVA in 2017 and has experienced steady growth in terms of business and employment. The Glasgow Economic Strategy is targeting employment growth of 50,000 by 2023, and seeks to make the city "the most productive major city economy in the UK by 2023."
Again, we see an alluring combination of a strengthening economy, increasing jobs, business growth and major investments in infrastructure and regeneration. Like Liverpool, Glasgow is focusing efforts on growth industries such as IT, renewables, life sciences and advanced engineering, and it's receiving an added boost from the presence of a popular and well respected university. This all adds up to increasing demand for tenancies, which - looking ahead - should help to buoy up rental returns and support steady price growth.
In general, then, the signs are looking very promising for Glasgow. Certainly, the prospect of high yields and steady capital gains make it an obvious target for further investigations.
Why is Leicester one of the best places to invest in property?
Leicester is another market where property tends to cost much less than the UK average. TotallyMoney estimates the median asking price to be £100,000, and average rents to be £667 per month. That equates to a yield of 8%, which makes it the highest performing location in the whole of the Midlands, at least with respect to yields.
That's an impressive achievement when you consider how often towns and cities in the Midlands are listed as investment hotspots. Both East and West Midlands have tended to fare well for those looking for a good balance of yield and capital growth, so to outperform Birmingham, Nottingham and the rest is no mean feat.
So what has made Leicester so attractive? Partly, it might be the result of strong business growth. The local economic partnership (LEP) states that "the City of Leicester and County of Leicestershire ... make up the largest economy in the East Midlands. Worth £23.4bn a year, our economy is central to the prosperity of the Midlands, providing nearly 500,000 jobs and hosting over 42,400 trading businesses."
Centrally located, Leicester offers a good strategic base for many major employers, and it hosts two of the country's largest distribution hubs. Moreover, many of the businesses that operate here specialise in growing modern industries; the region has seen massive employment growth - equivalent to 17,000 workers - in its professional, scientific and technical sectors, which employ a total of 41,000 people.
Once again, the presence of three universities also makes a big impression on the rental market and on the city's fortunes in general. This echoes TotallyMoney's observation that some of the best results occur in "renowned university cities, (where) the consistent flow of potential tenants puts landlords in a healthy position."
Like Liverpool and Glasgow, Leicester has big ambitions. The LEP states that it aims "to be the most productive economy in the Midlands, contributing at least £30 billion each year to the UK economy by 2030."
Which Other Locations are the Best Places to Invest in Property?
Banks, estate agents, newspapers and other commentators on the property industry can only base their opinions on the data available to them. One perennial challenge for investors is the task of comparing one opinion and one set of data against another.
Here, we have used figures from three or four main sources, but other data sets are available and they inevitably produce different findings.
One example is based on recent research by SevenCapital, which examined yields and price growth in a range of UK cities. This led the company to suggest that one of the best places to invest in property in 2020 would be Birmingham, on the strength of its robust economic growth, large population and a track record of steady capital gains, combined with rental yields that have ranged between 4.4% and 5.3%.
Next on its list came Manchester - a regular property investment favourite - where prices have risen by a total of 22.09% since 2014. This steady price growth has made it increasingly hard to achieve high yields in 2019, and no Manchester postcode made TotallyMoney's top 25 this year, but with its huge economy and continuing growth, Manchester remains a commonsense choice for any shortlist.
Nottingham, Sheffield and Leeds also featured in SevenCapital's list, as did Liverpool and Leicester.
So how do I Find the Best Places to Invest in Property?
There is a limit to how useful regional or city-wide data can be when it comes to finding the best places to invest in property. Even at the postcode level, average figures don't tell the investor enough to justify making a decision.
This kind of information can really only help investors to narrow down the scope of their investigations. If that's the stage you're at, then the locations listed above might be good places to begin.
However, finding the right investment is about more than just yield and potential capital growth. It's also about your attitude to risk and certain lifestyle choices, such as whether you want an 'armchair investment' and whether you prefer to invest locally. Such considerations are important and can't be glossed over.
If you’re still considering where the best places to invest in property in 2020 are, this demands serious thought and research. One of the best ways to ensure that your next investment ticks all your boxes is to talk to a reputable property investment specialist.
If you're considering an investment in 2020, please call one of our advisory team today on 01244 343 355.
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