PROPERTY INVESTMENT IN LIVERPOOL A GUIDE
Turn to any property investment publication these days and you’ll undoubtedly find Liverpool ranking as one of the most hotly tipped destinations for buy-to-let. The reasons are plain. Numerous reports have shown that the city is delivering the best yields in the whole of the country – for both short-term and long-term rentals – which means it’s following exactly the same pattern as it did in 2018-2019. Affordable properties and excellent rental demand have produced dependably strong performances and, as one of the UK’s fastest-growing economies, Liverpool has rightly been dominating the headlines. Add to this a growing population and forecasts of some of Britain’s strongest capital growth, and it’s easy to see why many experts regard Liverpool as the country’s single most attractive property investment market.
Why Invest in Liverpool?
For property professionals, shortlisting an excellent investment destination begins with a simple check-box exercise. In Liverpool’s case, the city can put a clear tick beside every point. On the question of yield, Liverpool is undoubtedly the country’s top performer. Nowhere does an investor’s money work harder. And when it comes to prospects for capital growth, the city shows all the right signs: a strong economy, vast sums of inward investment and rapid employment growth in high-value sectors that attract large numbers of well-paid staff. Property prices tend to rise in tandem with average disposable incomes and, here, in this most ambitious of Merseyside cities, there is every reason to expect a continuing improvement. This has not been lost on institutional investors, who have been pouring increasing sums into the Liverpool build-to-rent market over the last year. Looking ahead, the real-estate specialist JLL is forecasting 13.1% capital growth in Liverpool between 2020-2025, with rental growth of 14.8% over the same period.
Liverpool’s Economy
Liverpool’s economy is one of the fastest-growing in the country. According to the Centre for Cities, its GDP in 2018 was around £19 billion. However, Oxford Economics has predicted that a successful implementation of the Local Enterprise Partnership’s regional growth strategy could see the economy expanding to a staggering £50 billion by 2040. With that would come an estimated 100,000 additional jobs, 20,000 new businesses and 50,000 new residents. This is a lofty ambition, but the city is well on its way to achieving it. The annual ‘Good Growth for Cities’ report published by PWC in November 2019 declared Liverpool to be the second most improved city in the country for economic growth. This builds on rapid growth throughout 2018 and as far back as 2017, when Liverpool’s GVA growth rate of 3.3% was faster than any other Combined Authority area in England. In February 2020, Ernst & Young published its Regional Economic Forecast, which projects GVA growth of 1.8% per annum between now and 2023, together with employment growth of 1.6% in 2020, and 1% annually thereafter. It notes that this follows on from GVA growth of 2% in 2019, and employment growth of 3.6% (equivalent to nearly 10,000 new jobs). These and other reports all point to continuing economic growth, more jobs and a growing population, all of which bode very well for property investors.
Inward Investment in Liverpool
One of the reasons that forecasters can be so confident of continuing economic growth is the scale of inward investment in Liverpool. Some of this has taken the form of publicly funded infrastructure projects, but a great deal of it has come from developers and other private businesses. Importantly, investments have been large and essentially continuous. In 2019, the FT reported that “private-sector led investment has topped £1bn annually for the past four years.” This has undoubtedly been helping to cement the city’s place as a great place to do business. In a study of the ‘Best Cities in Britain for Business 2019’ Management Today ranked Liverpool in its top 10, noting that “Regeneration projects worth £14bn are in the pipeline in a city that is already home to major global brands and a world leader in sectors as diverse as maritime and logistics, health and life sciences, energy and the environment, creative, digital and tech, and advanced manufacturing and engineering.”
In the same report, it pointed to some notable new schemes including the Pall Mall development in Liverpool’s commercial district, which is witnessing the construction of hotels, office blocks and new public realm facilities. It also identified Paddington Village - a £1bn expansion site, which is creating 1.8 million square feet of modern facilities for science, technology, education and healthcare. Scheduled for completion in 2030, it will ultimately house the new headquarters of the Royal College of Physicians, a further education college, medical research units and a hotel.
Other important schemes include: • Liverpool2 deep-water container terminal – a multi-million-pound expansion of the £400m deep-water facility at Liverpool SuperPort. • A new tidal-power barrage in the River Mersey, awarded development funding in February 2020. • A new low-carbon hydrogen production plant in Ellesmere Port, granted £13m of government funding in February 2020. • The Clatterbridge Cancer Centre – a new specialist treatment centre, now being built as part of a £162 million investment in improved cancer care for Merseyside and the wider region. • Liverpool Upper Central, a 56-acre development site designed to give the city’s Knowledge Quarter room to expand. Connecting key locations including Liverpool Science Park, Central Station and Liverpool University, it’s expected to kick-start £2bn of further regeneration, and to support the creation of 7,000 new jobs. • The Baltic Triangle, Liverpool’s digital and creative quarter, which has seen £128 million of new development work, with an additional £62 million now in progress. • Lime Street Gateway, a £39 million scheme to improve the area around Lime Street Station, the arrival point for millions of visitors every year. There will be a further £11 million allocated for the conversion of a former cinema into a live performance venue and TV studio.
• A scheme to convert the former International Festival Gardens site into a new mixed-use zone comprising retail facilities, housing, open spaces, cafes and restaurants, and other amenities. The scheme has already attracted £10 million of government funding. • Ten Streets – a 1 million square foot development area close to the docks, set to become a new ‘creativity district’ for start-up businesses. It is expected to support the creation of around 2,500 new jobs. • A new Isle of Man ferry terminal, close to the city centre. The £38 million development will serve passengers, vehicles and freight traffic. • Liverpool Cruise Terminal 2, a new £55 million facility at Princes Dock, which will greatly enhance the city’s capacity to attract larger cruise ships with more tourist visitors. Plans were approved in August 2019. JLL reports that the “council is also investing a further £32 million in upgrading the A565 to support the new cruise facility and north docklands, and is gearing up to create a £20 million link road to extend Leeds Street to the waterfront.”
Liverpool Waters
The preceding list would be impressive by any standards, but there is one more major development taking place in Liverpool, and it dwarfs virtually all of them. Liverpool 4Waters is a £5.5 billion redevelopment programme that will transform the city’s waterfront over the coming decades. Led by the Peel Group, it will be the biggest urban regeneration project in Liverpool’s history and will surely have a massive impact on the city’s economy. City planners predict it will ultimately boost job numbers by 20,000 and create approximately 3.4 million square feet of office space. Construction began in 2018. The Liverpool Waters vision sees skyscrapers lining the banks of the Mersey, together with hotels, restaurants and a variety of leisure spaces. Two notable early projects are Moda Living’s £82 million, 34-storey skyscraper, known as the Lexington, and the Regenda Group’s £21 million Plaza 1821. Both are situated on Princes Dock.
Despite significant progress in 2019 and 2020, the scheme is a long-term venture, expected to support ongoing urban regeneration for the next 50 years. This is important for property investors because it means Liverpool should continue to enjoy strong economic regeneration, not just over the coming years but for decades to come. One of the highest profile developments on the waterfront will be a new home stadium for Everton Football Club at Bramley-Moore Dock. Costing an estimated £500 million, the 52,000-seater stadium is slated to open in 2023. This will leave the club’s existing ground, Goodison Park, empty but plans have now been submitted to use the area to create a mix of new housing, public health facilities and a youth enterprise zone, together with modern retail and leisure spaces.
Business Growth in Liverpool
Merseyside is home to more than 65,500 businesses, many of which are based in and around central Liverpool. In 2019, data compiled by Inform Direct using ONS and Companies House figures, found that the number of businesses operating in the city had risen by nearly 4% over the previous 12 months – a faster rate than at any time in its history. Since then, the accelerating pace of investment will only have boosted the local business population and all its attendant social and economic benefits. For landlords, more entrepreneurs and more people in work tends to translate into growing rental demand and a greater capacity to pay rentals on higher quality accommodation. What’s more, those prospects improved still further in September 2019, when the city’s mayor, Steve Rotheram announced the launch of a £75 million fund to support business growth. The biggest such cash injection for 20 years, it will provide business loans, fund training and apprenticeships, and provide direct support to fastgrowing enterprises. It is expected to help create 2,000 new jobs, especially in higher-paid, knowledge-based industries.
The announcement coincided with the launch of Liverpool’s own dedicated growth company, called the Growth Platform. The Liverpool City Region Combined Authority notes that “the company will co-ordinate, manage and promote a wide range of business support, growth, investment, skills initiatives and sector development services across the City Region.”
Growth Sectors in Liverpool
Liverpool has seen a pronounced strategic shift in its economy. Once, the city’s identity was defined by its docklands and all the industries associated with them, but today, Liverpool has a thriving economy, with growth focused on high-value sectors such as: • Advanced manufacturing and engineering • Creative and media • Digital and ‘big data’ • Education • Health and life sciences • Logistics • Low carbon energy • Professional business services • Tourism Manufacturing in general is big business in Merseyside. Valued at over £3bn per annum, it supports three thousand businesses and 50,000 jobs. But in the field of advanced manufacturing, many of the city’s other growth sectors are converging to create added value. For example, academia, life sciences, pharmaceuticals and digital industries are all coming together in Liverpool to create centres of excellence in smart-automation and virtual engineering.
Merseyside hosts some very well-known manufacturers that are major employers in their own rights. Unilever has facilities here, as do Pilkington and Ineos. Astra Zeneca is part of the city’s £1.5bn chemical and pharmaceutical sector, which supports over 7,500 jobs, and Jaguar Land Rover is a key player in the area’s £850 million automotive sector. However, a new generation of businesses are coming up to join these top-flight brands, thanks to investments such as the Materials Innovation Factory - a £65 million collaboration between the University of Liverpool and Unilever. Designed to accelerate the expansion of knowledge-based industries, it is drawing together around 300 researchers to help lead new scientific and commercial innovations. In historical terms, the creative, digital and media industries have only just arrived on the scene but already, they are worth £1.8bn per annum to the city economy. According to LCR Combined Authority, the sector has expanded at a compound annual growth rate of 7% since 2010. It supports more than 22,000 jobs and nearly 4,500 businesses, and it’s responsible for one of the UK’s fastest rates of new business start-ups. Their success has been encouraged by strategic investments such as Sensor City – a £15 million enterprise zone – a new £50 million film studio, and the recently launched Giga Village, a £7 million commercial development on the former Cains Brewery site.
The life sciences are another sector that is being buoyed up by synergies with big data, artificial intelligence and advanced engineering. The city is home to Royal Liverpool University Hospital, numerous specialist medical facilities and The Liverpool School of Tropical Medicine - a world-leading centre for research into tropical diseases. As a result, the city’s life-sciences sector is now one of the biggest and most successful in all of Europe, generating £3bn of annual revenues and supporting 6,000 specialist jobs. More generally, healthcare sustains upwards of 100,000 jobs across the city.
Energy and sustainability are another important growth sector in Liverpool. In Liverpool Bay, the waterfront has become the focus for one of the UK’s most successful renewable energy clusters, with one of the world’s largest wind turbine farms lying just a few miles offshore. The city is also supporting cutting-edge research into renewables and it should soon see progress on its innovative tidal energy barrage, which has been making its way through the local planning system. In all, Liverpool’s low carbon sector is worth around £2bn per annum and supports a workforce of well over 27,000. The professional services sector is another exciting growth sector in Liverpool. Valued at £8bn per annum, it sustains 12,000 companies that have created over 107,000 jobs. One especially fast-expanding market is wealth-management, which is worth £2bn alone, but other subsectors of the financial industry - insurance, marketing and accountancy - are also keeping pace and are projected to create more than 20,000 new jobs by 2040. A report by Oxford Economics for the local enterprise partnership notes that the city’s business and professional services will be worth an extra £4.6bn by 2036.
Liverpool’s Port and Logistics It’s clear, then, that Liverpool has embraced some high-value, futurefocused industries, yet for all that, it hasn’t forgotten the value of its maritime heritage. Indeed, it is seeing a distinct revival of its ports and logistics industries. A recent report, commissioned by Maritime UK and the Centre for Economics and Business Research declared Liverpool to be “stand out region” with respect to sea freight, and noted that the city will be crucial to the UK economy in the years following Brexit. Looking back at 2017, the report estimates that the industry produced £650 million in GVA and supported nearly 8,000 jobs. Moreover, thanks to logistics connections to the wider Northwest, it was worth around £2bn to the broader regional economy, and helped to sustain 52,000 jobs. Published in September 2019, the report projects a cumulative growth rate of 16% between 2020 and 2023.
Liverpool’s Tourism Market
In August 2019, LCR Local Enterprise Partnership produced a study of recent visitor data, which highlighted the notable success of the city’s tourism sector. It stated: “The region’s visitor economy is now worth over £4.9bn… and supports over 57,000 jobs.” It also pointed out that the record number of visitors welcomed to the city in 2019 (over 67 million) marked a 5% increase on the previous year.
The sector has been making ever larger contributions to the city’s economy. The LEP reports that “over the last 5 years, there has been a 28% growth in the economic value of the visitor economy.” What’s more, further infrastructure improvements are being proposed – the new cruise liner terminal and the possible expansion of Liverpool John Lennon Airport, which saw a 600% rise in passenger numbers between 1997 and 2017. In other words, this already vigorous sector could soon be gaining even more momentum. For landlords with an interest in short-stay accommodation, this could be especially good news. Rising numbers of overnight visitors will boost demand for serviced apartments and short-term lets, which – in Liverpool – are currently delivering the best yields anywhere in the country.
Liverpool’s Housing Market
Liverpool’s undoubted economic strength is key to the vibrancy of its property market, which is proving exceptionally attractive to property investors. On all the key measures – affordability, rental demand, yields and potential for capital appreciation – the city is performing very well. For the second year running, Liverpool has led the field in Totally Money’s UK Buy-to-Let Rental Yield Map. Liverpool postcodes take six of the top 25 places in its 2019-2020 league table – more than any other British town or city. The country’s number 1 slot is taken by Liverpool L1, which with average asking prices of £90,000 and rents of £750, is delivering gross yields of 10%. Not far behind are Liverpool L11 (yields of 8.67%) and L6 (8.12%). Last year, in the same table, Liverpool L7 was the country’s best performer, delivering an average rental yield of 9.79%, while L1 came close behind with 9.33%.
On the measure of capital appreciation, Liverpool is again a high-performer. According to Hometrack’s UK Cities House Price Index for September 2019 Liverpool and Edinburgh both saw price gains of 5.8%, a better result than any other UK city. In January 2020, that figure was closer to 4.2%, but that still compares very favourably with a UK-wide average of 2.9%.
Buy-to-Let Investment in Liverpool
For all these reasons, Liverpool has earned itself a place among the UK’s top property investment destinations. Top-ranking yields, strong price gains and the prospect of further capital growth are factors that are hard to ignore. But on top of all that is the city’s spectacular performance in the short-stay rental market. Buy-tolet investors with property in parts of Liverpool have been enjoying yields as high as 27.2%. That’s according to figures published recently by Portico Host, quoting results achieved by landlords in the city’s Fairfield district. Short-stay accommodation is often a profitable form of investment and whether landlords choose serviced apartments or some other business model, Liverpool’s excellent tourist credentials make it an ideal market to consider.
Student Property Investment in Liverpool No examination of property investment in Liverpool would be complete without also addressing the student property sector. Merseyside is home to four universities, all of which help to maintain a steady, profitable rental market. Patterns of demand are predictable and, in many postcodes, yields are extremely good. The University of Liverpool is one of the world’s top 200 universities and is a crucial source of rental demand. It’s also a key driver of economic investment. In 2016, Oxford Economics found that the University generated £652 million GVA to the City Region, and supported one in ten jobs in the city. Importantly, the University recently announced plans for a £1bn expansion of its estates over the next 15 years. This includes significant investments including the £8m Digital Innovation Facility and the £22m Arts and Humanities Centre, both of which are now under construction. In all Merseyside hosts around 75,000 university students, which amounts to a huge target market for landlords and developers of purpose-built student accommodation. In recent academic years, the student populations of Merseyside’s universities were as follows: • • • •
Universty of Liverpool: 35,000, including 8,000 from overseas. Liverpool John Moores University: 18,945 Edge Hill University: 15,220 Liverpool Hope University: c. 5,100
What are Liverpool’s Property Market Predictions for 2020 and Beyond? Looking at Liverpool’s economic strength, the steady growth of its industries and the massive inward investment now taking place, there is every reason for property investors to expect excellent returns in the coming years. Here, perhaps more than in any other British city, regeneration plans are being measured in decades rather than years, so the prospects for sustained improvement could hardly look better. For example, the Liverpool Waters project is expected to run for a full 50 years, and important infrastructure improvements will be taking place alongside it, all helping to ensure that Liverpool’s resurgence is both dramatic and long-lived. The evidence is convincing and major employers have certainly been showing their faith in the city’s future with huge new investments in the waterfront and other districts. Institutional investors have shown a similar conviction by committing money to new commercial developments and purpose-built student accommodation. For individual property investors, all the indicators are strong and reassuring. Liverpool has a proven track record when it comes to delivering top yields but it’s also faring well with respect to capital growth. Looking ahead, JLL expects Liverpool to see price gains of around 2% in 2020, and over 13% by 2025. Meanwhile Zoopla has predicted that Liverpool, Glasgow and Belfast could share the UK’s biggest rises – averaging around 4% over the course of the year.
One longer term risk is that market demand will eventually push prices higher and that yields will gradually begin to erode. That could be an argument to invest sooner rather than later, but with current prices still so far behind the national average, they have plenty of room for growth. Realistically, the city should continue to produce strong yields for many years to come.
Summary Liverpool is justifiably regarded as one of the very best places in Britain to invest in property. The city’s population is rising, as are its economic fortunes. It’s the focus of one of the UK’s largest ever urban regeneration schemes and market confidence is extremely high. Liverpool performs well on all measures and stands as a logical choice for buy-to-let property investment in 2020.
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