Investors - time to consider a new city?
Traditionally London has been regarded the epicentre of property investment in the UK, even in spite of occasional year on year price deflation as we have seen in the last 2 years, it still remains a popular choice with investors, but low yields and a new social economic dynamic means this is now starting to change. It is these social and economic trends which can be a tell tale on where to possibly invest outside of London. Northern england has received a lot of press in the last few years, talk of Nothern Powerhouses, HS2, the trans penine railway but also bubbles bursting but how much stock can be placed in headlines and does it stack up to look up north? Let us look at what is happening in what some now call Britain's second city.
The capital no longer holds the same appeal for younger people today who have different ambitions to those held by previous generations who were lured by the bright lights of London. Generations Y and now Z are increasingly looking towards Manchester as a more affordable and attractive place to put down roots, drawn by its vibrancy and its wide-ranging leisure facilities, culture and most importantly its job market. Advances in technology make these choices possible now that were not available maybe even 5 years ago. The commercial application and use of the cloud by pretty much everyone now means that they don’t have to go to London alone to find fame and fortune, and big business has come to the same conclusion.
This migration is not new, but Manchester faces new challenges as the pace continues to hasten, with the population of the city increasing by 26% between 2002 and 2017, and by 51% for those aged 21-30. In 2017 it saw the largest net migration from London in five years. However, with higher demand comes higher prices and the pressure is now on to deliver the number of homes required to keep pace with the growth of infrastructure and employment.
Many of the companies attracted to the city are in the IT and professional services sector who anticipate that many of the forecasted 11,000 new jobs they are creating by 2022 will be filled by graduates and young people. It is no coincidence either that Manchester’s appeal for these younger generations is the technology hub the city has become. By definition, Gen Z are a group who have grown up with the internet, know only a digital world and feel most comfortable in an environment that embraces technology and social media.
Manchester has become the FinTech capital of the north with some 80,000 tech professionals living in the city supported by a university culture that tops up that talent pool on demand, and a graduate retention rate of 51%, second only to London. At the same time however housing supply is not keeping pace with influx of new residents with only 4000 purpose built residential units due to complete in the next 2 years. This imbalance creates opportunity for investors at a time when home ownership for these younger Mancunians is still largely unattainable, and who are likely to continue renting for the foreseeable future.
Speed of supply, not the supply itself is the missing ingredient for Manchester, but there is certainly the appetite to address that from the Mayor, the city council and developers, along with a long list of further infrastructure projects in the pipeline. In the meantime, Gen Z demand is sky high for modern low maintenance flats in the city centre being most sought after and in the short and medium term the supply and demand imbalance will get worse before it gets better.
This inevitably means there will be some accelerated house price inflation in Manchester over the coming years, JLL forecasting over 28% in the next 5 years.
Investors would be well advised to take advantage of this scenario and consider an off-plan purchase for many reasons. Prices are lower than units that have already been built with further discounts available for multiple unit purchases, and often the best units are available in phase one. It is the investor not the developer that benefits from any house price inflation that takes place during construction, so the earlier the purchase the greater this stands to be.
With yields at 6% and an average property price of £172,000, Manchester is certainly worth a look.