In the summer of 2020, we published an article focusing on the Lancashire city of Preston, and featuring some of the key reasons why we felt it was worthy of investors’ attention. That was written soon after the first wave of the Covid pandemic, before the nationwide roll-out of the NHS vaccination programme and at a time when people were still very uncertain about how the pandemic might play out.
Since then, much has changed. At the time of writing, more than half of all British adults have been fully vaccinated and the average rate of hospitalisations has fallen sharply. There are still uncertainties, of course, not least those surrounding the Indian variant of Covid-19, but the country is certainly in a different place to where it stood in June 2020.
BTL Returns in Preston
In the meantime, Preston has continued to distinguish itself as a productive market for BTL investment. Across the city, average values have risen by 11.29% year on year, according to the latest market data from Zoopla. In cash terms, that equates to an average gain of £19,673 since last we wrote about the city. In common with other parts of the North West, Preston has far exceeded the average national rate of growth. Yields, too, have been solid. According to LiveYield, gross returns for the central PR1 outcode have averaged around 6.3%, and a little less (4.3%) in higher-priced PR2 postcodes. Those yields are partly the result of prices that remain very affordable by national standards. Zoopla estimates the UK average price at £309,103 as at the beginning of June 2021, whereas the average price paid in Preston was just £203,006.
On the basis of its performance over the last 12 months, Preston has undoubtedly lived up to its promise, and those who invested at the time of our previous post will have enjoyed significant gains since then. And looking ahead, the prospects continue to look good.
Savills’ 5-year residential forecast doesn’t focus down to the city level but it expects the North West as a whole to lead the UK in terms of capital growth between now and 2025. Region-wide, it predicts average appreciation of 28.8% over that period, compared to a UK average of 21.1%.
Good Economic Signs
The health of the local economy is always an important consideration for property investors. The Covid pandemic led to a substantial national economic contraction in 2020, and it will be some time before it fully recovers. However, at the national level, recovery has been faster than many predicted, and unemployment forecasts have been revised down.
At the more local level, Preston has several important advantages that have made it more resilient than certain other towns and cities. It does attract tourists, certainly, but the market is not so critical as it is in popular holiday destinations such as Blackpool or Cumbria, or city-break hotspots such as central Manchester. Instead, its fortunes are more closely tied to higher value industries such as defence, aerospace, advanced manufacturing and a range of professional services.
Similarly, it is buoyed up by the presence of the University of Central Lancashire, one of the country’s largest universities and a major employer in its own right. It’s also been the launchpad for many spin-off enterprises, specialising in everything from software development to advanced industrial materials.
Covid Recovery Plans
In April 2021, civic leaders gathered to develop a Covid recovery plan for the city. Their Independent Economic Review is being led by a panel of experts and being funded by all key local authorities including Lancashire County Council, Blackburn with Darwen Borough Council, Blackpool Council and the Lancashire Enterprise Partnership (LEP). The review is a work in progress but it is already being supported by a £12.8 million funding pot earmarked for business support, training and apprenticeships – all part of the strategy to achieve a rapid post-pandemic ‘bounce.’
The city is also benefiting from its widely applauded Community Wealth Building programme, a public sector procurement policy that has boosted the local and county economies to the tune of hundreds of millions of pounds. It has also attracted millions more of inward investment, and seen job numbers grow strongly. This has all contributed to higher living standards and improving consumer sentiment which, in turn, has been helping to sustain rising confidence in Preston’s property market.
The Covid pandemic has obviously been a shock for economies worldwide, but sooner or later, they will return to a greater sense of normality. When they do, the usual market fundamentals will return to prominence and, since the key drivers of rental demand remain very strong in Preston, the city should remain a highly attractive investment proposition.
Quality of Life
One of those drivers is the steadily improving quality of life enjoyed by local residents. For four consecutive years, PwC’s Good Growth for Cities report has ranked Preston as the North West’s best city to live and work.
The Student Market
Another important driver is the city’s large student population. Around 30,000 of them live and study in Preston, so they represent an important rental market and they inject millions into the local economy. So too does the University of Central Lancashire’s large staff roster; UCLan is one of the North West’s five largest employers.
More generally, UCLan is a major investor in the city’s economy and it is currently working on a £200 million masterplan that is steadily transforming the northern quarter of the city centre.
Preston’s population is estimated at 141,000 but ongoing investments and economic expansion look set to attract new inbound workers from other regions. Their arrival should put further pressure on a property market that is already struggling to keep pace with demand.
Last year, we noted the importance of the £434m Preston, South Ribble and Lancashire City Deal, which is expected to support the creation of around 20,000 new jobs and to swell the local economy by around £1 billion over the coming decade. But since those announcements, other important steps have been taken, including the signing of a new Towns Fund deal that will provide over £20 million of funding to support the regeneration of the city’s Harris Quarter. This is one of several key elements of the Preston City Investment Plan. The funding will support improvements to the Harris Museum and Art Gallery, a new cinema and leisure development, additional car parking, a new Preston Youth Zone, and improvements to the public realm.
New Industrial Investments
In 2020, Preston’s principal appeal centred upon its massive town centre improvement programme. That is still progressing at a healthy rate and driving many of the market improvements that had been expected of it. Since then, however, other new projects have been set out or set in motion, and these should accelerate the pace of economic recovery and growth.
One is UCLan’s £35 million investment in its new Engineering Innovation Centre (EIC). The Council notes that “The EIC is already home to state-of-the-art aerospace and flight simulation environments that sit alongside UCLan’s established and expanding portfolio of aerospace and related engineering courses.” This is all helping to consolidate Lancashire’s position as the fourth largest aerospace cluster in the world. With BAE Systems and Samlesbury Enterprise Zone on its eastern flank, and BAE’s Warton site immediately to its west, Preston lies at the very centre of this high-value, high-growth sector.
Another key investment has been the £10 million awarded to National Nuclear Laboratories at the Springfield atomic energy site, which lies a few miles north of the city centre. NNL and Westinghouse Nuclear Fuels are seeking to develop a “Clean Energy Technology Park” and this most recent cash boost will support NNL’s development of a new generation of modular reactor technology.
Both projects are featured in the ‘Vision’ section of the City Council’s new City Investment Plan, which notes that both projects will require news skills and talent. For investors, Preston’s ability to attract greater numbers of highly-skilled (and better paid) workers will be welcome news, and another driver of demand for good quality rental accommodation.
Rail and Transport
A third driver is investment in the rail industry and, in particular, the infrastructure surrounding Preston railway station. The station is a key stop on the West Coast mainline, and will ultimately benefit from the completion of the HS2 line. It will be designated an “integrated high-speed station” and to prepare for this, it is to see substantial improvements, including the lengthening of two of its main platforms.
HS2 notes that the investments will speed connections, reduce crowding and deliver larger visitor numbers to the city. This could mean “75,000 extra visitors a year, adding £3.3m to the city’s economy annually,” while “productivity gains from the impact of HS2 services to the area could help provide an extra £600 million for the region.”
Importantly, HS2 is not the only source of new investment. In July 2020, Lancashire County Council welcomed news that over £600 million is to be invested in the electrification of the Transpennine main line, together with other improvements to the regional network. This followed a March 2020 announcement that the County Council’s £40 million bid for transport improvements around Preston had been approved. Its press release notes that “The money from the Transforming Cities Fund, announced (by) the government, will support schemes across the city designed to improve connectivity by bus, rail and active travel.”
Much has happened in the last year, but nothing has changed the fact that Preston remains one of the UK’s most attractive and rewarding buy-to-let investment markets. Prices are affordable but they’re rising at an impressive rate that far exceeds UK norms. Rental demand is strong and, if current investment is anything to go by, it should become even stronger over the course of the coming decade. Relatively low investment costs, coupled with good monthly rental returns are, of course, a recipe for strong yields, and Preston has undoubtedly been delivering these in recent years.
Currently, with much of the inward investment focused on the city centre – the university, the central shopping areas, the railway and attractive residential areas such as Winckley Square – some of the best opportunities are to be found in the PR1 outcode. It’s here that many new professional workers will be seeking to settle in order to take advantage of new jobs and proximity to key employers. Consequently, it’s here that property investors should see the strongest demand for high quality properties that most appeal to discerning modern tenants.
To find out more about investment opportunities in Preston, please call our advisory team on 01244 343 355 or fill out the form below