The East Midlands represents one of Britain’s most attractive property investment destinations, thanks largely to the performance of two key cities:
Nottingham and Leicester.
Both cities have seen headline-grabbing increases in average capital values and yet they still both exhibit comparatively low property prices. The affordability of property, coupled with high rental demand has also enabled them to deliver some of the country’s best yields.
However, there is far more to the East Midlands than just these two cities. Taken as a whole, it embraces Derbyshire, Leicestershire, Northamptonshire, Nottinghamshire, Rutland and parts of Lincolnshire. It therefore covers a large geographical area, measuring over 6,000 square miles, and it’s home to other important urban areas including, amongst others: Chesterfield, Derby, Lincoln and Northampton. These and other conurbations could each merit a ‘spotlight’ article of their own.
Given the size and diversity of the region, it’s important to recognise that investment conditions will vary considerably over the different areas. This article will focus on just Nottingham and Leicester, and that’s mainly because it’s these two cities that appear most often in the lists of top-ranked buy-to-let investment markets. Keep a look out for both Nottingham & Leicester to be added to our Property Investment Location Guides.
Nottingham – an overview
Nottingham is the largest urban area in the East Midlands. According to an ONS estimate published in 2017, Nottingham had a population of 329,200, but its wider functional boundaries encompass more than 920,000 residents.
Located roughly 110 miles north of London and around 120 miles south of Newcastle, Nottingham occupies a central position within England. It is well connected via the national motorway network and, in time, it will also benefit from a connection to the new HS2 rail network. What’s more, East Midlands Airport lies only 15 miles away to the south west.
Robust transport infrastructure and its position at the heart of the country has made it a convenient headquarters for many large employers. Boots is one of the most notable private sector employers with its base here, but the city also plays host to some large multinational businesses. Rolls Royce employs around nearly a thousand workers in the county, Center Parcs supports around 1,500, and Experian has a local workforce of over 2,000.
Some of its largest public sector employees include:
- Nottingham University Hospitals Trust
- Nottingham City Council
- Nottinghamshire County Council
- Nottinghamshire Health Care Trust
- Sherwood Forest Hospitals Trust
- Nottinghamshire Police
Collectively, these bodies employ nearly 50,000 people, and that’s to say nothing of the city’s further and higher education sector. Together, the University of Nottingham, Nottingham Trent University and Nottingham College sustain nearly 10,000 jobs.
This mix of well-established public and private sector employers has given Nottingham a strong economic base, but the city has not been content to simply coast along. It has an ambitious economic plan that seeks to attract billions of additional investment, and to accelerate the growth of some of its most successful local industries. Amongst others, these industries include:
- Advanced manufacturing
- Digital and creative industries
- Distribution and logistics
- Financial and business services
- Life sciences
D2N2 – the Local Economic Partnership
D2N2 is the Local Enterprise Partnership for Derby, Derbyshire, Nottingham and Nottinghamshire. It is responsible for supporting business growth and investment across an area with a population of over two million people, and with an economic output of over £42.9 billion per annum.
The organisation has a successful track record. Its previous economic plan, which launched in 2013, achieved its aim of creating 55,000 new jobs within three years. Now, it has launched its second strategic plan. Entitled Vision 2030, it seeks to generate up to £9 billion in added value in the local economy, “getting us into the top 25% in Europe for productivity, raising earnings, narrowing inequality and sharing prosperity across all parts of our two cities and two counties.”
For property investors, the growth plan could herald further improvements to an already attractive property market. Economic growth will doubtless be hampered by the impacts of the coronavirus outbreak but this will be equally true of all UK investment markets. All else being equal, the D2N2 blueprint should see new infrastructure, the completion of a number of major urban renewal projects and the creation of thousands of new jobs.
The stated aims of the new strategy include increasing the value of the area’s economy to £70 billion, and creating approximately 39,000 new jobs by 2030, with 90% of those new jobs arising in the service sector and various future-focused, knowledge-based industries.
Employment and Living Standards in Nottingham
In many previous spotlight articles, we’ve placed a big emphasis on job creation. Often, that’s very important because rising employment tends to bring in more people to an area and that, in turn, buoys up the property market and demand for rented accommodation. It also helps to ensure that a rising percentage of the local population enjoy steady and respectable earnings. This raises average disposable incomes, which tend to move in close parallel with average property values.
For investors with an interest in Nottingham, the prospect of 39,000 new jobs over the next decade is therefore appealing, but it’s interesting to note that job creation per se is not the chief concern of the local economic partnership. Rather, it is committed to changing the pattern of local employment; moving more people into higher-skilled, better-paid roles. This too would have positive implications for local property investors since it would be another way of raising local residents’ aspirations and spending power.
D2N2 notes: “There will not be a lot of new labour entering the economy between now and 2030, so we must find ways of producing more output with the labour we have. We need to enable workers at all levels to move up into the more productive, better-paid jobs, and raise workforce skills levels to respond to the economy’s future needs.”
Inward Investment in Nottingham
Working towards these targets, local planners have given the green light to a number of important and potentially transformative projects in Nottingham. In many cases, progress has been delayed by the Covid-19 pandemic but there is no doubting the scale of the work, nor its likely impacts upon completion. Indeed, in November 2019, Nottingham City Council reported that local regeneration projects had already created an estimated 1,000 new jobs, and with more schemes in the pipeline, more jobs are likely to follow.
Some of the most notable schemes now taking place in Nottingham include:
- Broadmarsh area regeneration: a £250 million retail and leisure development scheme. This includes the £89 million intu Broadmarsh Shopping Centre project, together with the creation of a new bus station and car park (valued at £43 million.)
Nottingham City Council observes that “the Broadmarsh redevelopment programme forms part of the £600 million worth of regeneration (taking place) in areas such as at Nottingham Station, Station Street, Unity Square, City Buildings, Carrington Street and more.”
- Nottingham College's City Hub campus: a new £58 million landmark building that will offer “new facilities and resources for college students, and provide community facilities such as a new training restaurant, café and performing arts centre.” The scheme will also see improvements to the public realm, including the creation of open green spaces and enhanced lighting and accessibility.
- HMRC offices, Unity Square: a newly built regional centre that will employ around 4,000 HMRC staff upon completion in 2021.
- Redevelopment of Nottingham Castle: a £31 million revamp of this historic landmark, which is expected to attract up to 350,000 visitors per annum, and around £9 million of annual tourist spending.
- Nottingham Forest FC Stadium: a £100 million redevelopment scheme to increase the club’s capacity to 38,000. A new three-tier stand will also include a museum and hospitality facilities.
The list goes on but these examples demonstrate that a great deal of regeneration work is taking place in Nottingham. Some projects – like the HMRC offices – will generate jobs more directly than others but the combined effects should certainly be positive for the economy and, thus, for local landlords. More jobs and more prosperity will build on the foundations of an already strong housing market, so these new schemes – and the economic strategy behind them – could see the property investment market going from strength to strength.
Student Accommodation in Nottingham
Another factor working in landlords’ favour is the strength of the student market. Nottingham attracts around 60,000 resident students every year. The University of Nottingham and Nottingham Trent University account for the bulk of these, but another important draw is the Queen’s Medical Centre – one of the largest teaching hospitals in the UK.
Collectively, these institutions help to ensure steady and reliable demand for rentals, particularly with respect to properties located within easy commuting distances.
Nottingham’s Housing Market
According to the UK Cities House Price Index, which is published by Hometrack using data from Zoopla, Nottingham achieved the highest rate of house price growth anywhere in the country. In the 12 months to March 2020, average values rose by 4.1%, which compares favourably against the UK-wide mean of 2.1%. According to the same source, Leicester took second place in the table, delivering average capital gains of 3.9%.
Of course, different sources produce different data but many of them identify a very similar trend, which is to say high rates of returns on the part of both Nottingham and Leicester. For example, the property website the Motley Fool produced a list of its top 10 ‘best buy-to-let locations for 2020.’ Both cities made the list, with Leicester leading them all in terms of capital gains. This data suggests that average prices in Nottingham have risen by 19% since 2014, while those in Leicester have risen by 23.92%.
Importantly, these impressive price gains also coincide with strong rental yields. The Motley Fool data suggests that Nottingham properties delivered average yields of 5.4%, while those in Leicester delivered 5.16%. Likewise, in March 2020, the online magazine Property Investor Today published findings from the lettings platform Howsy, which placed Nottingham third overall in the UK, behind just Glasgow and Belfast. It estimated that the average buy-to-let property in Nottingham delivered an average yield of 5.46%.
Other sources offer more detailed, granular figures, which are potentially more useful because they are less subject to city-wide averaging out. For example, according to market information published by PropertyData, which publishes yields by postcode, Nottingham’s central NG1 postcode produced a yield of 7%. Leicester’s LE1 postcode came close behind with 6.6%. Some other postcodes in the same cities were delivering yields of closer to 3%, which demonstrates the importance of choosing the right locations.
Looking at various sources over various timescales, it is clear that rental properties in the right parts of Nottingham and Leicester could offer investors some exceptional returns. We have considered some of the reasons why this might be true of Nottingham, so now let’s turn our attention to Leicester.
Leicester – an Overview
Leicester is the largest city in the East Midlands, although its surrounding urban area is somewhat smaller than that of Nottingham. Leicester has an estimated population of nearly 418,000 and a notably robust economy. It’s valued at approximately £8 billion and in 2018, PwC rated it as one of the ten strongest in the UK.
Like Nottingham, the city benefits from a central location and excellent transport links. Accordingly, it is home to some large and well-known employers - including, amongst others:
- British Gas
- Dunelm Mill
- Walkers Crisps
According to Leicester and Leicestershire Economic Partnership, the city and its surrounds support a number of high-growth business sectors, which the LLEP is working hard to support. These include:
- Advanced manufacturing / engineering
- Creative industries
- Distribution and logistics
- Food and drink
- Health and social care
- Low carbon industries
- Professional and financial services
The presence of so many large employers helps to maintain jobs and local living standards, which in turn help to underpin the housing market and to support strong demand for rentals. To these many businesses, one can also add a host of public sector employers, including the University Hospitals of Leicester NHS Trust, which sustain over 15,000 skilled jobs.
Student Accommodation in Leicester
The education sector is another important source of rental demand. The University of Leicester has a student body some 17,000 strong, while an estimated 22,000 students attend De Montfort University.
In addition to attracting thousands of new undergraduates every year, these institutions are helping to increase the local pool of graduate talent and thereby supporting the city’s transformation into a knowledge-based economy. As more graduates choose to stay in Leicester to take up more highly skilled jobs, so demand for rentals will increase and so average disposable incomes will tend to rise.
Leicester’s Economic Development and Regeneration
LLEP’s most recent economic strategy set itself some impressive targets for growth. By the end of this year (2020), it hopes to have achieved the following across the county:
- Created 45,000 new jobs;
- Leveraged £2.5 billion of private investment;
- Increased GVA by £4 billion, from £19 billion to £23 billion.
These goals will build on other good work completed over the last decade, some highlights of which include:
- Securing £126 million of funding through the Local Growth Deal;
- Delivering a £21 million Regional Growth Fund programme that supported c. 200 businesses and which either created or protected over 2,800 jobs;
- Securing £16 million of City Deal funding to “create nearly 1,500 jobs (and) unlock over £130 million of investment.”
Work now taking place includes a wealth of transport infrastructure improvements, the creation of new enterprise zones and the revival of key areas such as the Leicester Waterside. This £20 million scheme will transform a 150-acre former industrial site, creating new workspaces, housing and public spaces. It has already created around 140 jobs and the first phase is due for completion this year, with additional works expected to create further office space in the coming years.
Other notable schemes have included Pioneer Park, a new £2.6 million development site for technology business; £7.2 million allocated to city centre improvements (‘Connecting Leicester’); and the creation of new managed workspace at Coleville. Scheduled for completion in March 2020, the project has created 126 new jobs.
A larger development has been the Market Harborough Line Speed and Station Improvement project. This £54 million scheme was funded mainly by Network Rail but attracted £13 million from the three surrounding LEPs.
These and many other developments are all helping to boost employment and to give further momentum to an already highly successful city economy.
Leicester’s Housing Market
Against this background, it’s little surprise that Leicester’s property market is faring as well as it is. We’ve already seen how it is achieving impressive ratings for capital growth and yield, and with numerous new economic development measures now taking place, investors can expect that trend to continue.
As we noted earlier, many published figures refer to the city as a whole but at a more localised level, it’s clear that some of the best returns are to be found in the city centre. Totally Money’s Buy to Let Rental Yield Map for 2019/2020 is another data source that rates LE1 as a top performer. It placed the postcode eighth overall in its UK chart and found that average yields there were averaging around 8.0%.
Nottingham and Leicester both offer an impressive array of attractions for property investors. Strong economies, ambitious growth targets, sizeable ongoing regeneration programmes and a well-established community of major employers… these are all positive signs that should earn either of them a place on investors’ shortlists. And these signs become even more compelling when considered alongside the cities’ proven rental demand, exceptional price growth and some of the best rental yields in the whole of the UK.
To find out more about investment opportunities in the East Midlands or other UK regions, please call our advisory team on 01244 343 355 or email email@example.com