Earlier this month, we turned our attention to Reading Property Investment and made the point that despite the media headlines, there are still some promising property investment opportunities to be found in the South East. Today, we continue that theme with a look at the Hertfordshire town of Watford.
Watford is located just 15 miles northwest of the centre of London, and there was a time when this fact alone would have been sufficient to inspire investor confidence. Almost anywhere within London's commuter belt was regarded as a safe bet, and as property prices rose in the capital, so they had a ripple effect that buoyed up prices in the surrounding area.
But then came the downturn in London's property market, and the beginning of a prolonged period of depressed or falling prices, accompanied by some of the lowest yields in the country. This had a dampening effect on many parts of the South East, and towns such as Watford have had to work hard to recover lost ground.
However, that's partly the point: Watford has been working hard to bolster its economy, to attract investment and to build a thriving community of businesses. It is now benefiting from important infrastructure improvements, an ambitious town centre regeneration plan and an entrepreneurial spirit that is seeing employment rising year on year.
Between 1991 and 2014, local employment rose by over 16%, which is well above the UK average. Since then, the trend has continued, and the town has seen a net increase of around 550 jobs per annum.
One of the key reasons for Watford's resilience is its location. Not only is it set just a short road or rail journey from London, but it also sits at the centre of what some are calling the 'Golden Triangle' of research and innovation. That triangle is bounded by Oxford, Cambridge and London, and it is responsible for some of the country's - indeed the world's - most important technical and scientific innovations. That gives the town an important advantage with respect to nurturing its high concentration of knowledge-based industries.
In terms of transport and connectivity, Watford boasts some excellent credentials for property investment. It is well served by the M1 and the M25, and Watford Junction is a major hub on the UK rail network. This all helps to make it a desirable base for companies that need to be working close to the heart of Britain's economy. Accordingly, Watford hosts the UK headquarters for many big multinationals such as Total Oil, TK Maxx, Hilton Worldwide and Costco. It is also home to a number of British firms' HQs, such as Camelot Group, Bathstore, and BrightHouse.
In all, more than 30 large organisations have their headquarters in Watford and, collectively, they add more than £1 billion to the local economy.
Rising Economic Fortunes
Watford's planners and business owners have been careful to invest in forward-looking growth industries and high-value sectors such as finance. A full 31% of all local employees are said to work in banking, finance and insurance, and the town is seeing steady growth in sectors such as advanced manufacturing and engineering, IT, life sciences, pharmaceuticals and healthcare.
The retail sector is also faring well. The town's most notable shopping area is the Intu Watford Shopping Centre, which recently underwent a £200m redevelopment. The revived centre has attracted a host of prestigious retail brands including, amongst others, John Lewis, Marks & Spencer, Disney and Apple. At over 130,000 square metres, it stands as one of the largest and newest shopping centres in the country.
Another important feature of the local economy is the success of the creative industries, which include a number of very successful film studios. Just two and a half miles from the town centre stand the Warner Bros. Studios at Leavesden, which have been used to make numerous well-known feature films including Goldeneye, The Phantom Menace, Sherlock Holmes and all of the Harry Potter films. Parts of the studio site are also open to tourists, many of whom visit to take part in the 'Making of Harry Potter' studio tour.
Given the strength and diversity of its economy, it's little surprise that Watford supports a busy community of more than 3,500 businesses. What's more, the town also boasts a healthy start-up success rate, which is well ahead of the UK average.
Local town planners have not been content to tread water, so they have been driving forward with some major regeneration schemes. The local council notes that "Watford’s major infrastructure and regeneration schemes represent a collective private and public sector investment of more than £1.5 billion over the coming decade."
One notable element of the town's regeneration plans includes ring-fencing over £1 billion for local investment in and around the town centre. This is supporting the creation of improved commercial zones and new premises for a wide range of businesses. The plans include spending over £9 million on the regeneration of a busy urban area - Clarendon Road - and investing £95 million in the redevelopment of Watford Business Park, which will offer over 80,000 square metres of space of offices and industry. A further £300 million has been allocated to the creation of new offices, research facilities and leisure space at Watford Riverwell; and £105 million allocated to creating new office space on Ascot Road.
Meanwhile, the town's transport hub is also set for a revival. The Watford Junction Masterplan features dramatic improvements including two new primary schools, up to 75,000 square metres of new office space, 7,000 square metres of new retail space, and a new railway station with improved access and facilities.
Watford in Context: Hertfordshire
No town or city stands completely alone, and it's fair to say that Watford owes at least some of its success to being part of busy economic areas. Hertfordshire LEP has invested heavily in local innovation, establishing the Hertfordshire IQ (Innovation Quarter) enterprise zone to encourage the development of fast-growing innovative businesses. Supported by the University of Hertfordshire and other well-known organisations including the Building Research Establishment (BRE), the area is attracting considerable investment from companies that have outgrown premises elsewhere in London and the South East.
All told, Hertfordshire's economy is already worth nearly £33 billion per annum and the LEP intends that by 2030, it will be "the single most concentrated area in Europe for scientific research and development."
These ambitions are being fuelled, in part, by a number of investment schemes. The LEP is using its £265 million Local Growth Fund to support local growth and, according to an LEP press release, expects that the money will "create at least 15,000 jobs." The LEP also states that its "expanded Growth Deal has the capacity to ... unlock £460 million (of) public and private investment by 2024/25."
The Watford Property Investment Market
For Watford, which is ideally placed to benefit from all this regional investment and continuing economic improvement, the future looks very promising. This is equally true for experienced property investors, who will be well aware the long-standing connections between rising standards of living and the health of the housing market.
Business growth creates jobs, and more jobs tend to draw in workers from outside the area. This, together with a rising population inevitably increases demand within the property market, putting upward pressure on prices as more people compete to rent or buy. Furthermore, an improving economy helps to raise people's standards of living and their spending power, so increasing numbers of prospective tenants will tend to seek out better quality accommodation. This is good news for investors, particularly those with higher quality properties that appeal to individuals, couples and small families.
Such changes are all evident in Watford. The town is attracting important new employers almost every month, and small businesses are also doing well. Consequently, employment is rising steadily, as is the population. At the time of the 2011 Census, the town's population was recorded at 90,301, but according to data published by NOMIS, that figure had risen to 96,800 by 2018.
According to ONS figures for June 2019, average house prices in Watford stood at £346,666, which is well above the English average of £246,728. According to figures published by Totally Money, prices in the central WD17 postcode were higher still, at around £395,000. However, when compared against averages for the whole of the South East, Watford's prices look relatively affordable. Zoopla's Zed Index puts average values in the South East at £405,679, while data recently published by Foxtons estimates a much higher average of £461,907.
Rental returns for Watford property investment are also relatively good. Totally Money estimates that average rentals are worth £1149pcm in central Watford, and £1250 in the nearby WD19 postcode. By contrast, HomeLet estimates that the average for the SE as a whole is only £1,045pcm.
For investors who are considering properties in the South East, these figures suggest that Watford must be a contender. This is not so much because they show the town's property market to be faring radically better than the region as a whole - its current yields of around 4% are about average for the South East - but more because of what is happening in Watford, and what that implies for the future.
Watford's economic fortunes are undoubtedly rising, and there are good reasons to expect that they will continue to do so. Job numbers and the local population are growing steadily, and these trends should only accelerate as a result of all the new investment that is happening in and around the town. Rental demand is strong and there is a pronounced shortage of good, affordable housing, so landlords can expect a healthy and sustainable market for tenancies.
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