In recent years, we haven't often focused on towns and cities in the South East. That's principally because properties there tend to be relatively expensive - i.e. above the UK average - and rental yields are often relatively subdued.
However, as we're always anxious to emphasise, broad regional figures mask considerable variation at the local level, so it would be wrong to miss a good opportunity for the sake of a broad generalisation. In that spirit, we thought we'd look this month at the Berkshire town of Reading, regarded as the largest of all English towns.
Set only 40 miles due west of London, Reading sits in the Thames Valley, comfortably within the capital's commuter belt. Unexpectedly, however, more workers commute into the town than out, which begs the important question: why? What draws 30,000 workers to the town every single day?
A Modern Economy
At least part of the answer to that lies in the town's vibrant economy. Over the last two decades, Reading has focused its development strategy on growth industries, including life sciences, insurance and information technology. Reading and neighbouring Bracknell host upwards of 40,000 workers in digital and technical industries, earning themselves the nickname of 'Britain's Silicon Valley.'
Standing on the Thames just 24 miles from Oxford, Reading is also an important nexus for commerce and industry more generally. It is the county town of Berkshire, it is a key interchange on the national rail network, and it is home to some of the country's best-known businesses. Examples of companies with their UK headquarters here include Microsoft, Huawei, Kyocera and Oracle. Other major employers include 3M, the Environment Agency, John Lewis, PWC, Thames Water, Ericsson, Symantec and the University of Reading.
A Key Regional Player
Importantly, Reading is also a key part of the Thames Valley and Berkshire Local Economic Partnership (TVB), which is overseeing an ambitious programme of investment, regeneration and infrastructure improvements. The LEP notes that "alongside London, the area is the UK’s economic powerhouse, contributing over £37bn in GVA to the national economy." Outside of London, it delivers the country's highest rates of economic output and productivity.
The LEP has high ambitions for the area. It is managing a series of funds that are helping to boost the region's productivity and jobs market, including £25 million of European structural and investment funds; the £15 million Growing Places Fund; and £135 million of investment "in local transport improvements through the Berkshire Local Transport Body and Berkshire Strategic Transport Forum." Its growth funding is partly the result of a £142 million Growth Deal signed with the government and covering the period 2015 to 2021.
This funding is all driving towards some longer-term ambitions. The LEP states as its goal achieving "A net GVA uplift of well over £700m by 2021 to sustain the area’s status as the most productive sub-region in the UK." In real terms, this translates into an average growth rate of around 3% per annum.
Here, Reading and its surrounds are building on strong foundations, particularly with respect to high-value, forward-looking industries. One in nine jobs in Berkshire are already based on specialist digital-technology roles, and the area is host to a thriving community of 45,000 businesses.
Significantly, many of these are foreign-owned, reflecting the fact that the area ranks in the top 5 destinations in England for securing foreign direct investment. In fact, the LEP area has the highest concentration of foreign-owned companies in the whole of the UK - over a thousand in all - which says something of the regard that major multinationals have for the area's strong strategic position.
Given Reading's exceptional economic performance to date, it's little surprise that forecasters are optimistic about its prospects. It is already outperforming UK averages in terms of GVA per head (up 2.2% year on year), unemployment (down 0.7%) and growth in private sector employment (up 2.9%). These trends are expected to continue their upward trajectories into 2020 and beyond.
The Property Market
Seasoned property investors know that a strong local economy is a good indicator of the long-term prospects for property investment. A growing economy means more businesses, more inward investment and more local jobs, all of which help to put money in the pockets of potential tenants. A growing population and increasing numbers of workers being attracted to the area help to drive up rental demand and, through price competition, to keep rentals buoyant.
But Reading has more going for it than just a thriving economy. It is also a well-established university town, and this has a further positive impact on the housing market.
Firstly, of course, there is the fact that nearly 16,000 university students live in the town, supported by over 1,800 staff. This has an inevitable impact on demand for rentals, where demand is strong, predictable and likely to be profitable. However, the University of Reading makes another significant contribution. It is responsible for almost £300 million worth of expenditure every year, much of which filters through local supply chains and supports local jobs.
Notably, Reading also boasts the highest student retention rates in the whole country; 41% of graduates who leave Berkshire to study, subsequently return in search of a local job. As a result, the area does not suffer from the 'talent drain' that so many other towns and cities suffer, and this helps to sustain a rising population and a growing base of high-value skills.
The Best Local Opportunities
Prospects for property investors vary widely across the town's various postcodes. When compared against UK-wide averages, prices in many areas appear expensive and yields are correspondingly poor, but this can be misleading. RG postcodes cover a wide range of different property types and neighbourhoods, so little can be gleaned from the headline statistics. A better approach is to consider where the greatest demand is originating, and what types of property are best suited to meeting it.
A detailed study of the town would unveil many attractive pockets, but one of the most obvious is the town centre. Reading has a very high proportion of young, skilled workers in high-value industries and, amongst such tenants, the greatest demands will likely be for modern one- and two-bed apartments set close to the centre. An address in the central RG1 postcode puts tenants close to the town's social amenities and railway station, as well as major employers such as the university and Royal Berkshire Hospital.
On face value, current yields are not spectacular but what Reading offers more than anything is potential for future growth. The town is growing - in terms of its population and economy - and it is attracting ever more workers who will need good quality accommodation. That combination of rising demand and better skilled, better paid tenants can only be good news for investors.
What's more, for those who are keen to invest in the South East, Reading is comparatively affordable. On average, purchase prices here are 8% below what you would expect to pay across the South East as a whole, so higher yields should be easier to achieve, and investor should find that their money works considerably harder.
Reading offers a different sort of proposition to the property investment locations we normally examine. It is characterised first and foremost by economic size and strength - factors that should provide the foundations for a steady and rewarding investment market. It doesn't offer the UK's cheapest property investment opportunities, but for those who can afford them, and for those who rightly regard property investment as a long-term business, it could be a destination well worth considering.
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If you have questions about property investment options in Reading or any other UK destination, please call one of our advisory team on 01244 343 355.