The property investment market can sometimes exhibit signs of a herd mentality. That’s understandable, of course. People want to minimise their risks and they sometimes take the view that if large numbers of other landlords have invested in a place, then it must be a safe bet. However, that’s not always true, as investors with rental properties in central London have discovered to their cost.
Considering only popular investment destinations may or may not produce good results. Those results depend largely on how much local research you put in, and on your own objectives as an investor. But one inevitable consequence of such an approach is that you’ll overlook some very promising opportunities elsewhere.
In this spotlight article, we’re focusing on Stoke on Trent as an example of a property investment destination that sometimes passes under the radar. Its economy hasn’t made many headlines and it might not have the obvious vibrancy of up-and-coming cities such as Manchester or Liverpool, but for investors who are concerned principally about strong demand and straightforward financial returns, it could certainly be one to consider.
Stoke: An Overview
Located in North Staffordshire, Stoke on Trent is an unusual city. Instead of having a single centre, it has six. It’s essentially a city composed of separate towns: Stoke itself, together with Burslem, Fenton, Hanley, Longton and Tunstall.
Stoke is home to the city’s main railway station and to the city council, so it’s a hub for transport and administration, but the focus for business, leisure and retail is neighbouring Hanley. The six towns came together as a federation in 1910 and despite growth and significant economic changes, they have all have all retained distinct identities.
Stoke is therefore a city characterised by variety, and that translates into a wealth of choice for property investors. The absence of a single urban centre means that investors can select properties according to more carefully defined criteria. Usually, business, culture and entertainments all compete for space in a busy central district where land is scarce and property prices tend to be higher. Here, however, landlords can be more strategic in their purchasing and in their targeting of prospective tenants.
Nevertheless, if we consider the city as a whole, then it stands as the largest urban area in the county, and altogether, it boasts a population of approximately 261,000. Moreover, that population is growing; between 2005 and 2015, it rose by 10,000 and the number is still rising.
In the last decades of the 20th century, many of Stoke’s traditional manufacturing businesses had begun to decline. However, the city has since sought to redefine itself as a kind of hybrid economy. On the one hand, it has made a success of its historic strengths in the ceramics industry, but on the other, it has embraced many forward-looking growth sectors.
That combination of old and new, supported by a £1.6 billion tourism and leisure sector, has helped to invigorate the economy. So too has a succession of government Growth Deals and massive funding on the part of the European Union.
In 2011, Stoke on Trent and Staffordshire Enterprise Partnership (the county’s LEP) set out a plan to grow the economy and boost local employment over the course of the next ten years. Today, as it approaches the end of that period, it can point to some considerable successes.
It is well on its way to securing economic growth of £4.5 billion (GVA), and it has smashed its target for job creation. In January 2020, a UK Powerhouse study ranked Stoke number one in the country for employment growth. The LEP had originally aimed for an additional 50,000 jobs but it has already seen employment rising by over 80,000 and it expects to achieve 87,000 by the close of 2021.
Since 2011, the economy has seen improvements including:
- 8% growth in employment
- 6% growth in GVA
- 12% growth in business numbers (+ 4,700)
- 13% growth in private sector jobs
These are very respectable figures that spell good news for local property investors. However, that’s not the end of the story; in 2017, the LEP published a revised plan to cover the period to 2030. In it, the authors set out a formal long-term objective: “to grow the economy by 50% and generate 50,000 new jobs in the next 10 years.” They note that the economic growth target will present significant challenges but they also add that “We are easily on track to develop 50,000 new jobs by 2024.”
With this in mind, Stoke looks set to maintain its steady growth and to retain its longer-term appeal to property investors.
Much of this economic success has stemmed from the presence of big-name employers, many of which continue the city’s tradition as a centre for manufacturing. However, there is little emphasis on ‘tradition’ in the city’s plans for the future. In 2020, the focus is very much on higher value industries, and Stoke now hosts a large community of advanced manufacturing businesses, digital specialists, agri-tech companies and more.
In all, some 9,000 businesses operate in Stoke on Trent and its immediate surroundings. Some important private sector employers include:
- Co-Op Pharmacy
- General Electric
- Goodwin Steel Castings
- Jaguar Land Rover
- Morrisons Site machinery
- Premier Foods
- Zytek Automotive
Stoke-on-Trent City Council is the city's largest public sector employer, and not far behind is the Royal Stoke University Hospital, which employs in excess of 7,000 staff.
The Education Sector
In recent years, education has been playing an increasingly influential role in Stoke’s economy. This is significant because planners have avowed their intention to increase the proportion of graduates and highly skilled workers within the city’s populace, and to support the growth of knowledge-based industries.
Two major universities are located within easy commuting distance from Stoke, making it an important attractor of students. Over 10,000 of them attend Keele University, and nearly 16,000 study at Staffordshire University.
Like Royal Stoke University Hospital, which is a sizeable teaching centre in its own right, the two universities have a profound impact on the local economy. They attract thousands of students and staff, of course, and they support extensive supply chains that sustain many additional jobs. But on top of that, they are also helping to kickstart several high-profile regeneration initiatives and they are responsible for some transformative inward investment projects of their own.
One example is the Keele Smart Energy Network. The local LEP notes that “The University of Keele is the largest campus university in the UK, serviced by its own private utility network. It has developed an at-scale demonstrator for smart energy technologies… The Smart Energy Network Demonstrator (SEND) is the first of its kind in the UK.” It estimates that “the network will have delivered 440 jobs by 2021 (120 in construction; 20 permanent; 300 indirect).” Furthermore, the LEP expects the scheme to “create up to 2,000 jobs, 3,900 apprenticeships and 1,100 traineeships whilst removing 49,000 tonnes of CO2 per annum over the next 10 years.”
Keele University and the Royal Stoke University Hospital also work with private sector partners and conduct cutting-edge research in disciplines such as:
- Clinical trials
- Stem cell research and tissue engineering.
- Together, NHS researchers and Keele University are working on numerous projects under the aegis of the Institute for Science and Technology in Medicine. Again, this is helping to build skills and capacity within the local economy, which should lead to rising average incomes and greater spending power on the part of home buyers and prospective tenants.
In more directly quantifiable cash terms, the University Hospital is responsible for £370 million of investment to strengthen its various partnership projects with Keele University. Keele itself is also helping to build the local skills base, to launch new business opportunities and, of course, to inject money into local supply chains.
A good example of this is Keele’s partnership with Harper Adams University, the purpose of which was to create a new veterinary school. This £7.3 million scheme will build capacity in the agri-tech and life science sectors, which are already recognised as two of Stoke’s principal growth industries. The school is scheduled to welcome its first cohort of students later this year.
The presence of two universities and a teaching hospital has helped to accelerate the expansion of some of Stoke’s most successful industries. Staffordshire University, for example, hosts various specialist courses for around 3,600 students, responding to the needs of advanced manufacturing businesses in the area. And as stated earlier, Keele is supporting the expansion of the city’s burgeoning agri-tech sector.
More generally, the continuing growth of many big employers is part of the reason why Stoke has witnessed such a marked improvement in its employment figures. For property investors, the success of so many industries augurs well for further job creation and, in turn, growing demand for higher quality rental accommodation.
As previously noted, numerous well-known manufacturers have made their homes in Staffordshire, and many of them have premises in and around Stoke. One of the most notable of these is Jaguar Land Rover, which established its new Engine Manufacturing Centre at the nearby development site known as i54 South. Its investment in the centre was worth more than £1 billion and it now employs approximately 1,700 staff.
The automotive sector is important to Stoke and to the wider county. The LEP notes that “Michelin, JCB, Johnson Controls, Pirelli, Magna and Zytek Automotive are all located within the area, whilst Bentley Motors, General Motors, MG Motors, BMW, Aston Martin and Toyota are all within an hour’s drive.”
Of course, road vehicles are not the only sector that is benefitting from the area’s strengths in advanced manufacturing. Stoke has married its newfound expertise with its long-standing specialisms in ceramics to support a wealth of new, high-tech businesses and processes. There are still many traditional names in the county – companies such as Royal Stafford and Waterford Wedgwood / Royal Doulton – but related technologies have spun off into areas such as architectural products, medicine, dentistry and polymerics.
Again, Keele University has been making an invaluable contribution – this time in the shape of its Birchall Centre. Here, it supports materials science research with applications in fields such as sustainable energy, catalysis and surface science. In a similar vein, Staffordshire University also supports local industries with a choice of courses in ceramic design.
The area’s ceramics industry supports more than 300 business and employs over 7,000 people.
Creative & Digital
Across Stoke, there has been a pronounced expansion of the digital and creative industries. The city has an impressive talent pool that is supporting high value projects in film, television, software, computer games and more. Part of the reason for this skills base is Staffordshire University, which is well respected as a provider of film and animation qualifications. Examples of its courses include “Digital Film and 3D Animation Technology; CGI and Digital Effects; 3D Computer Games Design; and Post Production Technology.”
Staffordshire has become an important hub for the power conversion and energy transmission industry. Companies such as ABB, General Electric and Siemens Wind Power have premises in the county, and here there are important cross-overs into the world of R&D. For example, Siemens has a research centre at Keele University, where it is devoting considerable resources to advances in wind power and related power converter technologies.
Logistics and Distribution
A central location, excellent motorway connections and a wealth of distribution sites makes Staffordshire a vital centre for UK logistics businesses. The area’s appeal is also boosted by its proximity to the East Midlands Airport and, only 25 miles to the north, Manchester International Airport.
As a result, the area provides distribution services for major brands such as:
- Asda George
- Marks & Spencer
- New Look
- Screwfix Direct
- Walgreens Boots Alliance
A strong academic base and a major teaching hospital have helped to make Staffordshire a thriving centre for healthcare technologies, and Stoke is paying a pivotal role in the sector’s growth. Keele University and the Royal Stoke University Hospital are leading research in fields such as bioengineering and tissue engineering, thereby creating a knowledge base that should underpin further economic growth and employment.
Professional and Business Services
According to the county’s Investment Services team, an estimated 31,000 people are employed in business and professional services. These include IT-related roles such as programming (supporting around 7,000 jobs), together with legal and accounting services – a subsector that has grown by a reported 40% since 2013.
Another important source of employment is the customer service industry; thousands of people work in call centres and support centres, serving the needs of brands such as Bet365, GE and Vodafone.
Inward Investment and Public Funding
The expansion of so many sectors has been the result not only of steady organic growth but of planned public sector investment, support services and funding. In recent years, Stoke has been the recipient of some very large sums of investment from a range of different sources.
The LEP notes that: “We secured over £121 million from the Government’s Local Growth Fund through the last three Growth Deals to support economic growth in the area… The Stoke-on-Trent and Staffordshire City Deal was successful in attracting £30.9 million of funding… Through the Regional Growth Fund, we secured £32.9m, which is expected to deliver beyond its target of 356 jobs.”
The LEP also gives a sense of the scale of local funding in the form of grants from the European Union, stating: “We have been successful at attracting European programme investment into the Stoke-on-Trent and Staffordshire economy. Through the 2014-20 European Structural and Investment Funds (ESIF), we have been allocated €96.5m from the European Regional Development Fund (ERDF), €64.4m from the European Social Fund (ESF), and €3.9m from the European Agricultural Fund for Rural Development (EAFRD).”
Some of this EU-funded support has been used to accelerate business growth and the area’s R&D capacity. For example, £11.3 million was used to fund a Smart Innovation Hub at Keele University’s Science and Innovation Park. The University describes the hub as a “multi-million-pound state-of-the-art facility (offering) a range of office space and business support opportunities for new businesses and entrepreneurs to grow their businesses through collaboration.”
Such a large influx of funds was always bound to support economic expansion and create new jobs. In this, the funding has clearly been successful. But importantly, much of it has been invested in capacity-building projects, including research and business support, so it should also provide a foundation for decades of continuing growth. For property investors, this all helps to underpin the prospects for strong and steady returns for years to come.
Major Development Projects
To nurture continuing growth, Stoke Council, the LEP and other agencies have backed a number of significant development projects. These are delivering land, infrastructure improvements and new premises to attract further private sector investment. Some examples include:
- City Centre Regeneration: part of an ongoing phased plan, this project seeks to create a public square, a 3,500-capacity arena, a new 4-star hotel, a multi-storey car park and a variety of food, sporting and leisure facilities. The overall value could be around £300 million over the next five years, depending upon the extent of private sector leveraged investment.
- New Business Quarter: for this scheme, valued at between £150m and £200m, Stoke Council has appointed development partner Genr8. In addition to the office buildings and hotel already created, it will see the construction of a further two new office buildings.
- Stoke Railway Station Regeneration: the city council has published a £138 million plan to improve local public transport connections, including improvements to the railway station. This could receive a further boost around 2027, when HS2 is expected to reach nearby Crewe Station.
- i54 Western Extension: Staffordshire County Council together and the City of Wolverhampton Council have worked together to enable the expansion of this, one of the region’s most successful development sites. i54 is home to around 2,700 workers but the new plan could see that number rising to over 4,000. The project team expects it to attract over £1.1billion of private investment.
- Ceramic Valley Enterprise Zone: £4.5 million of initial investment helped to create a thriving centre for business growth, which is already employing nearly 800 workers. Set on six sites and totalling 240 hectares, the zone has an estimated development value of £2.5 billion over the next ten years. By 2025, it is expected to support a further 6,000 new jobs.
- Spode Works: the result of a £4 million investment project, this city centre development has created 46 artists’ studios as part of the city council’s regeneration plan for this 10-acre site. The work has prompted further regeneration efforts, including the construction of a new hotel and café, and a new gallery extension to the Spode Museum.
These are just some of the most notable examples of regeneration and development work taking place within Stoke. There are many others, including multi-million-pound road improvements and enhancements to the public transport systems. The list goes on but what is clear is the scale of inward investment and steady progress towards the strategic goal of creating a buoyant skills-based economy.
For years now, Stoke has been witnessing steadily rising employment and investment in modern, knowledge-based industries. For property investors, that supports confidence that the economy is moving in a positive, sustainable direction; one that will attract more potential tenants with the jobs and money to support continuing growth in both rental demand and local property prices.
Stoke’s Housing Market
Unsurprisingly, with so much happening in the city and such a fast rate of employment growth, there is strong demand for rental accommodation. However, average prices have remained low in comparison to the UK norm.
According to Rightmove’s figures for May 2020, “properties in Stoke-On-Trent had an overall average price of £142,958 over the last year.” That compares to the company’s estimate of the UK mean, which it puts at £311,950 – or in other words, well over twice the average price in Stoke. Rightmove indicates annual capital appreciation of around 2.1%.
Zoopla uses different data but points to a similar pattern. Its May 2020 figures show that, in Stoke, the average price paid was £155,732 and the average valuation was £161,027. That compares with a UK mean of £319,967 – again roughly double the price in Stoke. Zoopla reports that average price gains in the city were around 2.75% over the course of the year.
Given such comparative affordability and the strength of local rental demand, Stoke is a logical target for investors looking for robust and dependable yields. However, the dispersed nature of the city makes it unusually difficult to quantify a meaningful average yield. Anecdotally, returns of 6% are achievable on carefully selected properties, but much depends on location and property type.
Stoke is an example of an investment destination where it really does pay to seek expert advice because while there are some excellent opportunities available, returns vary considerably across even relatively small geographical areas.
That said, there are some useful criteria that can be applied to produce an investment shortlist. Properties in the neighbourhoods of some of the big commercial regeneration projects could be a safe option for those seeking professional tenants. Another rewarding option could be accommodation aimed at the buoyant student market. Keele University is located roughly three and a half miles to the west of Stoke, so the more westerly postcodes could be attractive. However, the University Hospital and Staffordshire University are much more central, so there could be some attractive deals in the ST4 postcode, too.
According to some recent studies, Stoke on Trent is the UK’s top-performing city for job creation, and it’s in the top 20 for GVA growth. There is a huge amount of inward investment taking place, businesses are thriving and much of the growth is occurring in higher value industries that should sustain the city’s success for decades. In short, the city is sending out all the right signals to property investors, and all at a time when average prices are still very affordable. Stoke might not enjoy the profile of cities such as Liverpool and Manchester, but there are some genuinely exciting opportunities to be found here.
To find out more about investment opportunities in Stoke on Trent, please call our advisory team on 01244 343 355 or firstname.lastname@example.org