PROPERTY INVESTING IN PRESTON A GUIDE
As a property investment location, Preston has steadily gained prominence in recent years. Economically, it is on a sharp upward trend; employment is rising and new investment money is pouring in from the public and private sectors alike. In 2018, the city was declared the ‘most improved city’ in PWC’s Good Growth for Cities report, and in 2019, it was named the ‘best city to live in the North West’. Since then, it has consistently ranked highly in the buy-to-let yield tables, thanks to very affordable property prices coupled with exceptionally strong tenant demand.
Why Invest in Preston? There is no great secret to why Preston is such an attractive property investment destination. In most respects, it comes down to the simple fact that the city meets all the most important investment criteria. Firstly, Preston is the third largest city in the North West. The urban centre has a population of almost 142,000 but the figure rises to more than 420,000 if we include those living in its outlying districts. What’s more, thanks to a £434 million City Deal – projected to create an additional 20,000 jobs – that population is growing steadily, putting more pressure on demand for housing and rentals. In 2019, the Centre for Cities published its annual Cities Outlook report, which listed Preston in its top 3 best-performing cities for employment. It recorded that Preston was “the only city outside the south of England to feature in the top 10.” It went on to note that employment levels in the city were 82.8%, compared against a UK average of just 74.9%. Like Manchester and Liverpool – two of the country’s other top-performing cities for property investment – Preston combines intense demand with very low property prices. This ultimately translates into high yields. Preston’s postcodes cover a large territory, so yields vary considerably by outcode, but some of the best can be found in the city centre, where conventional rentals can deliver between 6.5% and 7%. However, there is much more to Preston than just high yields and fast-rising employment. In this guide, we’ll look at some of the other key factors that are making the city attractive to investors.
Preston’s Economy Since 2018, Preston’s £7.4 billion economy has been making headlines on the strength of its exceptional recovery. Not so long before then, it had been beset by problems that had led to high unemployment, minimal inward investment and a comparatively poor standard of living. But as a result of a new City Deal and a public sector-led policy of ‘buying local’, Preston began to see a resurgence. Today, that recovery is manifesting itself in a host of multimillion-pound regeneration projects. Some are funded by Preston City Council or Lancashire County Council – both of which have their headquarters here – but others are led by private developers. Others still have been launched by the University of Central Lancashire, which is now working to a £200 million investment masterplan.
The City Deal agreed in 2013 was always intended to be used to kickstart rapid regeneration, and it is certainly achieving this goal. Whole swathes of Preston are now being redeveloped and prospects for employment growth have never looked better. Local planners have set themselves a target of creating 20,000 new jobs and boosting the local economy by £1 billion before the end of the decade. New landmark schemes are rising up around the city and cranes have become a familiar part of Preston’s skyline over the last two years and more. New developments are now in the pipeline and these could boost the local economy still further. For example, Preston lies on the West Coast mainline, connecting London, Birmingham, Glasgow and Edinburgh, with both capitals reachable in a little under two hours. But with the advent of HS2 and faster rolling stock, those times will be slashed. Estimates by HS2 put the revised journey time to London at 78 minutes rather than the current 128. Economists suggest that if Preston is able to capitalise on the associated opportunities, HS2 could prompt £3.5bn of GVA growth for Preston and its surrounds, and an 11,000 increase in jobs by 2050. These and other schemes make Preston an excellent destination for property investors, since they are all likely to have positive market impacts. Rising employment should draw in more residents, boosting rental demand, and business growth should put more money in tenants’ pockets, thereby helping to sustain healthy rental returns. On top of all that, a more general improvement in residents’ average disposable incomes could have a positive effect on prospects for longer term capital appreciation.
Preston and Connectivity One of Preston’s economic strengths has been its excellent strategic position. Historically, it was a major port town located on a mainline railway that connected London to Scotland. It was also the site of Britain’s first motorway and it’s now served by four of them: the M6, the M55, the M61 and the M65. Liverpool and Manchester are within easy commuting distance, as is the engineering heartland of East Lancashire. However, Preston also offers easy connections to holiday and recreational destinations such as Blackpool and the Fylde Coast, the Forest of Bowland AONB, the Yorkshire Dales and the Lake District, which lies only an hour away to the north. In terms of both business and quality of life, Preston could not be better connected.
Inward Investment in Preston Inward investment has been one of the most obvious signs of Preston’s continuing economic success. Over £100 million of urban regeneration projects are currently in progress, with numerous others scheduled to come online shortly.
The Stoneygate Masterplan In July 2019, Preston City Council published plans of a 15-year regeneration scheme that will encompass four contiguous districts of the city. Planning discussions aimed at improving urban connectivity are underway and, already, the plan has prompted local developments such as the restoration of Preston Livery and Carriage Works. In time, the scheme is expected to deliver improvements to public realm, new modern offices and an attendant increase in local jobs.
The Winckley Square Heritage Initiative Located in the heart of the city and home to numerous professional services businesses, Winckley Square is a Georgian-era city garden that was recently returned to its former glory. More than £1 million of improvements were undertaken in 2018/19, not only in the square itself but in neighbouring streets, which have seen major refurbishments and the creation of high-quality office spaces.
The Market Quarter Preston’s old indoor market was recently demolished to make way for a new £50 million leisure and retail development that will feature its own car park and an 11-screen cinema complex. This follows a £3 million renovation of Preston’s Victorian-era Covered Market. Built in 1895 and comprising a large canopy supported by columns, it is now partially enclosed by glass, creating an indoor market hall that is home to numerous food and catering businesses. The markets are located very close to the former Guild Hall Theatre which, itself, is expected to benefit from £10 million of private investment.
Bus Station Square Project Preston’s iconic bus station is a Grade II listed landmark that has seen an £11.4 million refurbishment in the last couple of years. Improvements to one apron have greatly enhanced public access, while interior remodelling has created new retail and catering facilities and a better overall visitor experience. The work has won numerous architectural awards and breathed new life into a building whose future once seemed uncertain. Associated with this has come a large public space outside the station – a public square with new paving, lighting and street furniture.
Transport Improvements In March 2020, Lancashire County Council heard that its bid for improving transport via the Transforming Cities Fund had been successful. As a result, it will now receive a further £40 million to help improve facilities for bus, rail and sustainable forms of travel such as cycling. Some of the money will be used to build a new railway station in the northern district of Cottam. This award follows over £70 million of funds already ringfenced for highway improvements in and around the city.
New Enterprise Zones In December 2019, planning consent was granted for the const ruction of a £20 million research facility in the Samlesbury Aerospace Enterprise Zone. Samlesbury is an outlying district of Preston where BAE Systems already has one of its principal sites and, as such, it is the focus of a massive UK supply chain as well as considerable investment. Collectively, BAE and its local suppliers employ over 13,000 workers. Samlesbury is one of four areas of Lancashire recently given Enterprise Zone status, the largest number ever awarded to a single local economic partnership. Together, they comprise the Lancashire Advanced Manufacturing and Energy Cluster (LAMEC). A second Enterprise Zone – at Warton – is located close to Preston, just a few miles along the river estuary, and is set adjacent to another BAE Systems facility. The Warton Aviation Enterprise Zone boasts UK’s only private fast-jet testing facility and a £2.3 million Training and Simulation Integration Facility (TSIF) which is part of a larger £10 million investment by BAE Systems. These new Enterprise Zones are projected to create up to 6,000 skilled jobs, and up to 7,000 more in local supply chains specialising in aerospace and defence.
University of Central Lancashire Masterplan In a period of just five years, UCLan expects to commit around £200 million of funding to new projects that will revitalise key parts of the city. Progress to date has been extremely rapid, with impressive new buildings going up in the Adelphi Quarter, where the old road layout and roundabouts are being transformed into a new public plaza. The area will be dominated by a new Student Centre while the open space will be publicly accessible and will host the university’s annual Lancashire Science Festival. In all, the scheme is valued at £57 million. Additionally, the masterplan has seen the creation of the £35 million Engineering Innovation Centre (EIC), which opened in October 2019. Described by UCLan as “the largest single investment in Lancashire’s educational infrastructure to date,” this state-of-the-art teaching and research facility will foster links between the university and local businesses to encourage better use of modern technologies.
The University of Central Lancashire Worth an estimated £185 million in GVA to Preston, UCLan is undoubtedly of great economic importance to the city, and its effects on Preston’s property market are appreciable. It attracts around 33,000 students plus a large body of teaching and support staff, so it’s responsible for sustaining significant rental demand. Student spending on rentals and day to day expenses are estimated to be worth around £24 million per annum and a 2015 report found that over a third of all graduates go on to find jobs in Preston. In short, their value to landlords can extend well beyond the few years they study in the city. The same report suggested that graduates starting up new businesses helped to inject a further £15 million per annum into the economy.
Business Growth in Preston Although some of Preston’s biggest employers are in the public sector – for example, Lancashire County Council, Preston City Council, UCLan and the NHS Royal Preston Hospital – the city has seen a pronounced surge in business growth. Some of this has been on the part of well-known organisations such as BAE Systems, Baxi, Booths and EDF, but much more has arisen from grass roots level. This success is at least partly owing to the public sector’s policy of local procurement; even as central government was cutting funding for County and County Council services, they and local NHS Trusts were shifting their buying policies. By prioritising local suppliers, they moved hundreds of millions into the local economy, rather than seeing funds bleed out to national or international suppliers. The result has been steady growth in business numbers and employment, which is well ahead of the UK average and still climbing.
Growth Sectors in Preston Unlike many cities, Preston is seeing growth across a broad spread of sectors rather than just a few key industries. The presence of BAE Systems is certainly supporting job growth in aerospace, defence and related areas, but other growth areas include health, technology and business services. The city also has a pedigree when it comes to nuclear energy; it is home to Westinghouse Electric’s Springfields nuclear fuel production installation in Salwick, which was established in the 1940s and was the first in the world to supply fuel for a commercial power station. Preston is also the base for the food distributor James Hall & Co, which operates as the primary wholesaler to SPAR, and also for the food packaging business Huntapac. Another major employer with premises south of the River Ribble is Eric Wright Construction, which is part of a group with a £200 million turnover. Other important employers include the customer contact specialists HGS, and the insurance company Homeserve, which has its claims management centre in Preston. More generally, Preston is witnessing strengthening performances at all levels in industries including: • Creative and Digital • Construction • Education • Energy • Food manufacture • Healthcare • Logistics • Manufacturing
Preston’s Tourism Market Tourism is an important element of Preston’s local economy, worth an estimated £330 million per annum. In 2018, it attracted approximately 7 million visitors but in the face of new improvements to transport infrastructure, retail facilities and attractions such as the Harris Art Gallery & Museum, numbers are expected to rise steadily.
HS2 Preston is a well-established stop on the West Coast mainline and is roughly equidistant from London and Glasgow. Consequently, it is well placed to benefit from any future improvements in rail connectivity, which should help to boost its economy, attract more short-stay visitors and generally make conditions even more attractive to property investors. Preston’s railway station has benefited from a £1.5 million investment by Virgin Rail, and as a result of the electrification of the Preston-Manchester line, journey times have been greatly reduced. However, it is HS2 that is likely to have the biggest long-term effects. By 2027, it is expected that journey times to London will be down to just 78 minutes from the current length of 2 hours 8 minutes. Similarly, HS2 indicates that journey times to Birmingham will be cut to 44 minutes. On its website, HS2 states: “HS2 trains will serve the current stations in Preston and Lancaster where passengers can access the high-speed network. There will be fast, frequent and reliable connections joining up the cities of the North and the Midlands.” High Speed Two Ltd is confident that the new scheme will “create jobs and secure investment years before it arrives. The Lancashire Enterprise Partnership believes that productivity gains from the impact of HS2 services to the area could help provide an extra £600 million for the region.” It also cites confidence on the part of Lancashire’s LEP, suggesting that HS2 could improve “Lancashire’s aerospace, energy, tourism and higher education sectors… In Preston itself, HS2 could mean 75,000 extra visitors a year, adding £3.3 million to the city’s economy annually.”
Preston’s Housing Market Preston has never been an over-priced property market and after the financial crisis in 2008, prices rose only relatively slowly. As a result, prices today are well below national norms, which means investors can pick up some excellent rental properties for a very affordable price. According to Zoopla, the average home in Preston cost £192,119 in February 2020, which compares against a UK average estimate of £319,967. Different agencies produce different figures, of course, but the stark difference is evident everywhere. For example, PropertyData quoted a UK average of £234,103 for December 2019, while its average for Preston’s central postcode districts was just £115,254. Regardless of the data source, it’s very apparent that Preston property prices are comparatively low, and that’s obviously good news for investors. So too is the widespread expectation that property prices will rise fastest in North West towns and cities; Savills, for example, expects to see prices in the region rise by around 24% over the next 5 years. Preston is better
Buy-to-Let Investment in Preston Demand for rentals in Preston is very strong. Tens of thousands of students play a part in that, of course, but so too do a rising population and growing employment rates. By some accounts, rental demand rose by 7% over the course of 2019 and the longer-term outlook is excellent. For buy to let investors, the signs are very promising. Healthy demand and low investment costs have translated into some of the country’s best yields in recent years. According to a March 2020 PropertyData report, average gross yields in the central PR1 postcode have been running at 6.6%. Higher yields can be achieved on certain well-chosen properties, particularly off-plan schemes, which might also be supported with rental guarantees.
Student Property Investment in Preston The student rental market is big business in Preston, thanks to that large undergraduate population. Yields can be rewarding and, of course, the market produces very dependable demand. However, a good deal of new construction has taken place in recent years, creating modern, purpose-built student accommodation (PBSA). By offering greater choice and better facilities than traditional student flats and bedsits, these new developments have increased competition and raised tenants’ expectations, so investors who are new to the market might be well advised to opt for higher quality rental properties that are conveniently located close to the city centre.
What are Preston’s Property Market Predictions for 2020 and Beyond? Considering all the investment taking place in Preston, coupled with its strong economy and buoyant rental demand, there is every reason to expect the property market to produce excellent returns in the months and years to come. Preston has delivered very solid yields over recent years and, as more young professionals settle in this fast-regenerating city, those returns are only likely to improve. At a national level, there is confidence that prices will rise steadily over the first half of this decade at least – not at a breath-taking speed but enough to outpace inflation and deliver solid returns. That’s the broad picture but there will be considerable variation between regions; some will gain and some will lose. Fortunately, for Preston, all the signs are that it is going to be one of the big success stories of the 2020s, and many property investors are already seeking to benefit from that.
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