In recent years, when property investment commentators have written about UK hotspots, they have tended to list three examples in particular: Liverpool, Manchester and Birmingham.
We've talked a lot about Liverpool and Manchester over the course of the last twelve months, but we haven't said quite so much about where to invest in Birmingham. We last reviewed it in April 2018, when we flagged it as one of the UK's most promising investment destinations, so now might be a good time to revisit it and see how things are looking.
One of the most useful gauges of comparative performance is the LendInvest BTL Index, which, in November last year, placed Birmingham 4th in its national rankings. At the time, it was found that Birmingham postcodes had delivered an average capital appreciation of 4.67%, together with rental price growth of 3.44%, and a rental yield of 4.49%. In short, a good and healthy balance.
LendInvest's 2019 figures should be published very shortly but all the indications are that the city will maintain its usual high rankings. Recent research by PropertyData and other organisations has identified a continuing trend for the big university cities to outperform other areas of Britain in the rental stakes. That bodes well for Birmingham, whose 80,000 strong student population is one of the largest in the UK. The presence of thousands of students, postgraduates and university employees inevitably helps to underpin demand and to provide landlords with a dependable, predictable supply of tenants.
Where to Invest in Birmingham - The Best Postcodes
The latest UK Buy-to-Let Yield Map from TotallyMoney provides an overview of rental performance by postcode. This gives some insight into which parts of the city and its surrounds tend to deliver the best returns, but it's important to recognise that each postcode area is relatively large and the properties within each will differ widely in terms of performance, price and rental appeal. Nevertheless, the results for the five most central Birmingham postcodes were as follows:
B1: Yields of 5%; average rental price £1,021; average asking price £256,521.
B2: Yields of 4%; average rental price £834; average asking price £181,150.
B3: Yields of 4%; average rental price £950; average asking price £288,283.
B4: Yields of 4%; average rental price £1,285; average asking price £177,498.
B5: Yields of 5%; average rental price £925; average asking price £242,638.
Looking at these broad averages, these results certainly aren't breaking any records. To put them in context, Nottingham's NG1 postcode delivered a reported yield of 11.99% in the same list of findings, and Liverpool's L7 postcode came in second with 9.79%.
However, these are only broad averages across relatively large postcode areas. As any experienced investor knows, the appeal and marketability of properties is never evenly spread across an area, and investors shouldn’t rely solely on these statistics for where to invest in Birmingham. The investment value of properties can change along the length of a single street, nevermind across a neighbourhood or district. What matters far more is how effectively a given property meets local demand.
Rental Demand in Birmingham
Birmingham is a growing city. This is partly a result of the exodus of young professionals from London who come looking for better value for money in their housing and (by virtue of lower rental costs) more disposable income. In 2018 alone, nearly 8,000 workers made the move from London to Birmingham in search of better standards of living.
The city's rising popularity is also the result of continued economic growth, which is pulling in new workers from outlying areas. Employment has reportedly grown by 12% over the last 3 years. And as noted earlier, it's also the result of a strong academic sector.
Finally, there's also the effect of natural population growth; Birmingham is already the UK's second largest city, with an estimated population of over 1.2 million residents, so its growth rate of nearly 3.3% (2018 data) should help sustain steadily rising rental demand well into the future.
The important question is how all these different factors translate into local patterns of rental demand. To look at that, let's break it down by tenant profile.
What kind of tenants does Birmingham attract?
Firstly, let's consider professionals and other highly paid skilled workers coming to the area to take advantage of lower rental costs and a healthy jobs market. More affluent and mature buyers might be looking for property in desirable, well established residential locations, such as the B15 and B17 postcodes. There are pockets of attractive housing all across these areas, although much of the property comprises traditional houses, best suited to families. Here, property values have been rising steadily, so these are good targets for investors who want to prioritise capital appreciation. Figures from Rightmove show that average prices in the B17 postcode have risen by over 22% since 2015.
However, traditional housing is not the ideal choice for everyone. Singles and couples - which might be typical of many skilled young professionals - may well prefer smaller flats in more central locations, where all the city's amenities, many big employers and central railway connections are all on their doorstep. Provided that the chosen property meets the needs of discriminating modern tenants, the city centre is a good choice for investors seeking high-yielding properties. It's also the location best positioned to take advantage of many of the big infrastructure improvements that have been taking place locally.
The key here is to identify central properties that meet the needs of affluent tenants - and as the UK's second biggest commercial and financial centre after London, Birmingham assures a ready supply. It is home to major employers such as PwC, Deutsche Bank, KPMG, HSBC and Allianz, and, as such, it represents one of Europe's largest clusters of business, professional and financial services companies. To capitalise on this status, developers and public bodies have created a wealth of grade A office space in prestigious, newly regenerated areas such as Paradise, Arena Central and Snowhill.
New 'build-to-rent' apartments are cropping up in the city centre to meet rising demand for professional-friendly rentals and here, investors can be confident of surpassing the 5% average yield achieved by the B1 postcode as a whole. Not only that, but healthy capital appreciation is also a realistic prospect. According to recent figures from Rightmove, the area has delivered average price growth of nearly 27% since 2015.
Of course, not all young incomers to the city want to live in the centre. Another area that is benefiting from the influx of young, affluent, fashion-conscious young people is Digbeth (B5), which is generally regarded as being one of Birmingham's trendiest addresses. Named one of Britain's "Coolest Places to Live" by the Sunday Times (October 2018), it has produced capital growth of over 27% since 2015, and yet average prices still remain relatively affordable.This, taken together with fast-rising rental prices, makes it one to watch for anyone seeking exceptional rental yields in the Birmingham area.
Another area well suited to younger tenants is the Jewellery Quarter (B3). Characterised by fashionable bars, clubs and restaurants, it has a 'cafe society' atmosphere that has proven consistently popular amongst young professionals.
For investors interested in the academic/student market, there are numerous apartments and purpose-built developments on the fringes of the University of Birmingham and Aston University that are worth serious attention. According to the online lettings agent Urban, some of these are now generating yields of over 11% - one of the highest rates in the country.
Other locations to consider include all those residential areas set close to new industrial parks and sites of urban regeneration; areas where thousands of new jobs are being created. Here, the prospect of new employment is bound to pull in a broad mix of people - of varying ages and skill levels - so this could be fertile ground for investors who prefer to put their money into more conventional, family-focused properties.
Do the Research on where to invest in Birmingham
We should conclude with an obvious word of caution: this kind of regional analysis inevitably produces a very 'broad brush' picture. It's essential to recognise that such an overview should never be used as the sole basis for an investment decision. It can't take the place of serious, detailed, property-specific research. Seemingly small details can make a significant difference to the marketability of a rental property, so it pays to do as much research as possible before committing to any new investment.
What can be said with confidence is that there are many locations within Birmingham that could be extremely lucrative for property investors. There's a huge amount going on in the city - in terms of economic growth, investment, urban regeneration and employment - and it's creating some really attractive opportunities. And market conditions are likely to improve still further in the run-up to the 2022 Commonwealth Games, which Birmingham will host, and which are expected to contribute more than £1.5 billion to the local economy.
The challenge of knowing where to invest in Birmingham, as ever, lies in finding a property with the right location and the right facilities for the intended market, and that demands a different balance of characteristics, depending on whether you're targeting students, young professionals, newly arriving workers or traditional families.
If you'd like help in identifying a property that meets your own personal investment needs, please talk to one of our advisory team today. Call us on 01244 343 355 or get in touch via our contact form.