PROPERTY INVESTMENT IN BIRMINGHAM
Birmingham is one of Britain’s most popular and rewarding buy-to-let property investment markets. Some key reasons for that include its large, fast-growing population, a buoyant economy and large sums of inward investment that are fuelling job creation and transformative urban regeneration schemes. Here, in this guide, we’ll examine these and other factors in more detail, and consider why many industry commentators regard Birmingham as the single most attractive property investment destinations in the country.
Why Invest In Birmingham?
In recent months, dating back to 2018 and beyond, numerous well-informed commentators have declared Birmingham to be the UK’s best performing property investment market. To support their arguments, they cite some of the city’s most notable strengths. • One of the UK’s fastest-growing populations outside London • A huge shortfall in housing supply • More foreign direct investment than anywhere out side London • Capital growth of nearly 20% since 2014 • Over 12% growth predicted by 2022 • Affordable property prices • Strong rental yields • An 80,000-strong university student population • Massive inward investment and urban regeneration • Poised to benefit from HS2 rail links • Thousands of new jobs being created • 11% employment growth since 2010 • More regeneration planned in preparation for the 2020 Commonwealth Games
Many of the same factors that make the city appealing to property investors also make it attractive to blue-chip employers and foreign commercial investors. As a result, Birmingham has seen a large, steady influx of new money and job creation by such organisations as BT, HSBC, Barclays, PwC and others. To put some numbers to that: • HSBC created 2,000 new jobs last year • BT is committed to creating 4,000 new jobs through its move to Three Snowhill, a brand new 17-storey office development. The move was announced in January 2020. • The accounting firm PwC recently relocated to One Chamberlain Square, bringing with it 2,000 members of staff. By the end of 2020, it expects this number to rise to 2,300, and it plans to generate 1,000 additional jobs in 2021. Over that three-year period, 2019-2021, those three firms alone will have added well over 9,000 new jobs in the city, but growth is actually much more widespread. HS2 Ltd has created 7,000 new jobs in Birmingham and now that the government has confirmed that the project will be going ahead, more can be expected between now and 2026. Additionally, at the other end of the scale, new-start up businesses are also driving employment and economic growth. Seven Capital recently recorded that “the number of start-ups recorded in Birmingham sat at around 18,000 last year and (this) has incrementally increased since 2016. In the same time period, the number of active businesses in the area has increased three times faster than the UK average.” In absolute terms, Birmingham has witnessed the birth of almost 2,000 new enterprises – a rise of 4.8%.
In all, the Big City Plan for Birmingham envisages the creation of 50,000 new jobs by 2030; an ambitious target but one that is looking increasingly realistic. There is no doubting Birmingham’s appeal to commercial investors and the region’s economic development teams have been keen to build on this success. The city is now witnessing a host of important new regeneration projects and infrastructure investments, together with improvements to Birmingham Airport.
Birmingham’s Population
For investors, this is all excellent news. Job creation on this scale will inevitably attract more people to the area, and this in a city that already boasts a population of 1.2 million people. What’s more, Birmingham has a comparatively young population. By some measures, it has the youngest population in Europe, with 40% of its population aged under 25. Partly, this is due to the natural expansion of its home-grown populace, and partly it is accounted for by its large student body. But another big factor is inward migration from London. This phenomenon has been a subject of considerable interest to journalists and industry commentators since at least 2018, when people began to see a marked change in young workers’ movements. Faced with hugely over-inflated property prices in central London and very high living costs, many young professionals and recent graduates began to question whether they could achieve a higher standard of living elsewhere. For generations, London had been the focus of a national ‘talent drain’, drawing some of the country’s best and brightest away from other parts of the country. However, that trend has seen something of a reverse in recent years, and Birmingham has been a big beneficiary of that.
Job prospects in Birmingham are excellent and yet rental costs are substantially lower than in London, so for many people, Birmingham wins on both counts. In 2018 alone, nearly 8,000 workers made the move from London to Birmingham in search of better standards of living. In a similar vein, Birmingham is now retaining a large proportion of its graduate population. According to Savills, the city produces 25,000 graduates per annum and almost exactly half of them choose to live and work in Birmingham.
HS2
The growth of Birmingham’s population is likely to be further accelerated by the advent of HS2, which will connect directly to Birmingham. The new high-speed link will put Birmingham within a 45 minute commute of central London, so rather than being perceived as an alternative centre of employment, the city might also soon be regarded as an attractive commuter city for London. Since property here costs a fraction of what it does in the capital, and since the cost of living is also much more reasonable, Birmingham could easily witness a further influx – but this time from people earning London-weighted salaries. The implications for demand for property and rentals are both obvious and exciting.
Housing Supply In Birmingham
As an already densely-populated city, Birmingham is characterised by intense competition for residential property – and particularly property in convenient central locations close to amenities, new development zones and city’s the biggest employers. According to a Seven Capital report in October 2019, rapid population growth “means Birmingham should need 100,000+ homes over the next 10 years.” It also highlighted a recent report by Knight Frank, forecasting that “residential property prices will rise across the region by nearly 11% over the next five years, while demand means Birmingham will need between 12,000 and 18,000 new homes.” New mixed-use developments are springing up around Birmingham and these will include a residential element, but the sheer scale of this chronic under-supply of housing suggests that the imbalance won’t be corrected any time soon. And until it does, simple economic rules of supply and demand suggest that investors with suitable rental property should be able to count on healthy and sustainable yields.
Inward Investment In Birmingham Often regarded as England’s second city, Birmingham has long been home to some of the country’s biggest employers. Notably, it is the UK’s second biggest commercial and financial centre after London. It hosts organisations such as PwC, Deutsche Bank, KPMG, HSBC and Allianz, and as such, it represents one of the largest clusters of business, professional and financial services companies anywhere in Europe. To capitalise on this status, developers and public bodies have created a wealth of grade A office space in prestigious, newly regenerated districts. Examples include: • Paradise: a £700 million city centre development that will create 1.8 million sq. ft. of mixed-use office, retail and leisure space. Work on phase 3 is expected to finish in 2025 and, upon completion, the site will support hundreds of new jobs. The scheme encompasses prestigious indi vidual construction projects such as Two Chamberlain Square, which was finished in 2019, and One Centenary Way, which will be finished in 2022. • Arena Central: another city-centre mixed-use development with a gross development value of £530 million. The scheme is creating over 1 million sq ft of space for offices and a 250-bedroom hotel, and giving rise to impressive new buildings such as 1 Centenary Square and 3 Arena Central, both of which are currently under construction.
• Eastside Locks: a £450 million canalside regeneration scheme, delivering improvements to the public realm and creating a hotel, shops, bars and restaurants. Projects include a £200 million, 37-storey development that will provide residential space together with nearly 20,000 sq ft of space for shops, bars and cafés. • Birmingham Smithfield: a £1.5 billion scheme to regenerate large parts of Eastside and the city’s central shopping area. Upon completion, it is expected to generate around 3,000 new jobs close to the city’s Bullring and New Street Station. Construction work will occur in phases, beginning in 2022 and with the first developments completing in 2025. • House of Fraser redevelopment: a £110 million scheme to revitalise one of the city’s best-known buildings. It is designed to create an important new retail destination in Birmingham and to support the creation of 2,000 new jobs. Planning consent was granted in December 2019, and the scheme will create a mix of office, retail and catering space. • 103 Colmore Row Tower: started in summer 2019, this will create Birmingham’s tallest office block. The 26-storey structure will dominate the city’s central skyline and will stand as the UK’s highest new office building under construction outside London. Due for completion in 2021, it will create 230,084 sq ft of Grade A office space and will boast its own roof terrace and top floor restaurant. • Media Village: plans are now in progress for a new £500 million film, TV and media studio in the Digbeth area. At the time of writing, work was due to begin in March 2020, subject to contractual agreements, and the project is expected to be supported by the British Film Institute, which will help to create apprenticeships. If all proceeds to plan, the London Film Academy will also be opening its Birmingham Film Academy to deliver media related training.
With these and many other developments taking place across the city, it’s clear that Birmingham’s fortunes are rising. As a result, investors can look forward to seeing growth in jobs, in the economy and in Birmingham’s population. In turn, these should drive strong rental demand, rising yields and good prospects for strong capital appreciation.
Business Growth In Birmingham
Birmingham has a strong economy worth an estimated £28 billion per annum, and it has been growing steadily. Recent figures from Birmingham City Council suggest that by the end of Q3 2019, it had expanded by 3.6%, which equivalent to an extra £985 million GVA. Some of this is the result of growth amongst big-name employers and the success of the city’s financial and construction sector but, as previously noted, there has been steady organic growth amongst the city’s small and medium sized enterprises. The urban business community has grown by just under 5% in the last 12 months, and further expansion is almost certain, given the extent of local investment. Some of Birmingham’s fastest-growing industries include: • • • • • • • •
Advanced engineering Business, finance and professional services Construction and architecture Energy and low carbon Food and drink Life sciences Tech and digital Transport and logistics
The 2022 Commonwealth Games
In 2022, Birmingham will host the Commonwealth Games, which is expected to have an important positive impact on the city. In preparation for the Games, parts of Birmingham will receive additional investment to improve transport and public spaces, creating upwards of 4,500 new jobs each year. By February 2020, organisers were advertising around a thousand new posts, many running to 2022 and beyond, and city planners have been busy creating new and improved city infrastructure. This will be necessary to cope with the surge in tourist visitors who are expected to watch the Games, but the improvements will, of course, make for a much longer-lasting legacy.
Once the Games themselves begin, the economic impact should be substantial. Estimates put the resulting increase in GVA at around £780 million, and as much as £1.5 billion over the longer term. For property investors, Birmingham’s status as host of the Games augurs very well. The additional money should further energise an already vigorous economy – creating more jobs, attracting more workers and putting more money in the pockets of potential tenants. This will add to demand for rental property and should help to underpin rising rental values up to and well beyond 2022. Moreover, the city is already seeing an influx of workers associated with pre-Games preparations and construction, which is adding to local rental demand rise, and there could be a further, million-visitor hike in demand for short-stay accommodation during the Games themselves. That could be especially good news for landlords with serviced apartments in the area.
Important recent developments have included: • Plans for the modernisation and expansion of Perry Barr, home of the Athlete’s Village. This will house 6,500 competitors and the development will subsequently be converted into homes for local people. • A new £88 million cross-city bus route that will run between Birmingham Airport and the city centre. This will coincide with major improvements to the city’s railway station, including the creation of a new bus interchange. • Construction the £73 million Aquatics Centre in Smethwick; a multi-use leisure centre featuring an Olympic-sized swimming pool, a 25m diving pool, a community swimming pool and seating for as many as 1,000 spectators. • Plans to expand the Alexander Stadium, which will host the opening and closing ceremonies. Recently approved plans will see a four-fold enlargement of the stadium, bringing its usual spectator capacity to 18,000 but with temporary seating for as many as 40,000. • Approval for a £25 million facelift for the city centre. Due for completion in the summer of 2022, the scheme will provide new paving, public security measures and signage. • Granting permission for the expansion of Birmingham Airport. The airport’s £500 million investment masterplan is entitled ‘The Midlands Gateway to the World’ and it seeks to increase annual passenger capacity by five million. Work should be complete in time for the Games, ready to handle the million extra visitors.
Birmingham’s Housing Market All of the factors listed above could have a positive effect on the city’s housing market and on its appeal to property investors. On the strength of these, many commentators have ranked Birmingham more highly than any other British buy-to-let destination, pointing to recent data as evidence of a strong, all-round performer. • •
Capital appreciation: 3.8% year on year (Home.co.uk) Rental yields: between 4.4% and 5.3% (PropertyData)
As a result of ongoing large-scale investment and rapid population growth, Birmingham is hotly tipped to remain one of the country’s most rewarding property investment destinations in 2020 and beyond. Industry predictions: • UK average price growth during 2020: 2% (Rightmove) • Average price growth during 2020 (W. Midlands): 3% (Savills) • Average price growth by 2022 (Birmingham): 12.5% (Knight Frank) • Average price growth by 2025 (W. Midlands): 18.2% (Savills) • Birmingham population growth: 12% by 2032 (Seven Capital) • Projected shortfall in housing by 2030: 100,000 homes (Seven Capital)
Student Property Investment in Birmingham Five universities operate in and around Birmingham, creating a student population of around 80,000, and sustaining employment for thousands of teaching and managerial staff, together with employment in their local supply chains. Universities: • Aston University • Birmingham City University • Newman University College • University of Birmingham • University College Birmingham Yields on conventional student rentals and purpose-built student accommodation typically vary between 5% and 6.5%.
For property investors, Birmingham is sending out all the right signals. Everything is moving in the right direction: its population, economy, jobs, housing supply and its historical performance in terms of price growth and yields. For all these reasons and more, Birmingham remains one to watch in 2020 and beyond.
For more information on property investing in Birmingham please contact our offices on 01244 343 355
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