PROPERTY INVESTMENT IN NOTTINGHAM A GUIDE
Based on its strong performance over the last five years and more, Nottingham certainly deserves to be considered as one of the UK’s most attractive destinations for buy-to-let property investment. There are several reasons for this and here we explore some of most important of them.
Why Invest in Nottingham? A Summary In recent years, property investment in Nottingham has been a rewarding business. According to numerous sources, the city has delivered some of the country’s best yields, together with some of the highest rates of capital appreciation. On both these key measures of investment success, Nottingham has been performing extremely well. Of course, an impressive track record is no guarantee of future performance, but there are many good reasons to believe that Nottingham will continue to deliver excellent returns in the years ahead. Key points to consider include: • • • • • • • • • • • •
Being part of the UK’s fastest-growing regional economy A large and growing population A pronounced shortfall in housing supply Affordable property prices Large-scale urban regeneration and inward investment Scheduled to connect to the HS2 rail network Many well-established major employers Steady growth in high-value industries A university student population of around 60,000 An ambitious economic development plan Thousands of new jobs being created 39,000 new jobs targeted by 2030
Nottingham – an Overview Nottingham is the largest urban area in the East Midlands. According to a 2017 estimate published by the Office for National Statistics, Nottingham has a population of around 329,200, but more than 920,000 residents live within its wider functional boundaries. Located roughly 110 miles north of London and around 120 miles south of Newcastle, Nottingham occupies a central position within England and is well served by the motorway and rail networks. The East Midlands Airport lies just 15 miles away and the city will eventually have its own HS2 station, greatly reducing journey times to other key UK destinations. As a result of this excellent strategic position, Nottingham is home to a wealth of large employers. Boots is one of the most notable private sector employers with its base here, but the city also hosts a number of large multinational businesses. Rolls Royce employs around nearly a thousand workers in the county, Center Parcs supports around 1,500, and Experian has a local workforce of over 2,000.
Public Sector Employers Some of Nottingham’s most important public sector employees include: • • • • • •
Nottingham University Hospitals Trust Nottingham City Council Nottinghamshire County Council Nottinghamshire Health Care Trust Sherwood Forest Hospitals Trust Nottinghamshire Police
Together, these and similar organisations employ nearly 50,000 people, and to that figure we must add all those working in the city’s further and higher education sectors. Together, the University of Nottingham, Nottingham Trent University and Nottingham College employ nearly 10,000 additional workers. This strong and balanced mix of well-established public and private sector employers has given Nottingham a robust economic foundation. However, city planners are seeking to build on this in the shape of an ambitious economic strategy. This aims to secure billions of pounds of inward investment, and to accelerate the growth of some of the city’s most successful local industries.
Inward Investment in Nottingham Securing inward investment is the remit of D2N2 – the Local Enterprise Partnership for Derby, Derbyshire, Nottingham and Nottinghamshire. It is responsible for supporting business growth in an area with a population of over two million people, and an economic output of over £42.9 billion per annum. D2N2 certainly has a successful track record. Its previous economic plan, which launched in 2013, achieved its aim of creating 55,000 new jobs within three years. Its second strategic plan, entitled Vision 2030, seeks to generate up to £9 billion in added value in the local economy. D2N2 writes that is intends to push the region “into the top 25% in Europe for productivity, raising earnings, narrowing inequality and sharing prosperity across all parts of our two cities and two counties.” Although the impacts of the coronavirus pandemic will inevitably slow local economic growth, the D2N2 strategic plan should still produce important new infrastructure and it will drive of a number of major urban renewal projects that should support the creation of thousands of new jobs.
The published aims of the plan include increasing the value of the area’s economy to £70 billion per annum, and creating approximately 39,000 new jobs by 2030. Importantly for a city that, historically, has supported a relatively high proportion of low-paid jobs, the strategy aims to ensure that 90% of those new jobs are created within the service sector and in various knowledge-based industries. To do this, D2N2 and Nottingham City Council are both committing substantial resources to business support programmes, training and vocational skills development, new business incubators and the creation of new workspace for future-focused businesses. In this, they are supported by important business outreach and commercial research programmes run by Nottingham’s two universities. Meanwhile, Nottingham’s physical infrastructure is being improved through a number of major construction projects. Progress has inevitably been delayed by the Covid-19 pandemic but there is no doubting the scale of the improvements, nor their likely impacts once they are finished. Already, Nottingham City Council has reported that local regeneration projects have generated around 1,000 new jobs, and more are certain to follow.
Some of the most important and transformative schemes now taking place in Nottingham include: • Broadmarsh area regeneration: a £250 million retail and leisure development. This includes the £89 million intu Broadmarsh Shopping Centre project, which will feature new retail space, restaurants and leisure activities, “including a multi-screen cinema and new restaurants.” The remodelling of the shopping centre will run in parallel with the creation of a new bus station and car park. This £43 million project will improve accessibility to the city centre. Nottingham City Council notes that this work is part of a wider plan to enhance a large part of the city centre. It writes that “the Broadmarsh redevelopment programme forms part of the £600 million worth of regeneration (taking place) in areas such as at Nottingham Station, Station Street, Unity Square, City Buildings, Carrington Street and more.” • Nottingham College’s City Hub campus: a new £58 million educational building that will create “new facilities and resources for college students, and provide community facilities such as a new training restaurant, café and performing arts centre.” The new-build project will also deliver improvements to the public realm, including the creation of open green spaces and enhanced lighting and accessibility. • HMRC offices, Unity Square: a newly built regional centre that will employ around 4,000 HMRC staff upon completion in 2021. The ten-storey building is located close to the city railway station and is another important part of the Southern Gateway regeneration project. The project is valued at £60 million and a topping-out ceremony was held in February 2020. • Redevelopment of Nottingham Castle: the £31 million refurbishment and extension of this scheduled historic monument is forecast to be finished at the end of 2020 with a view to the Castle being re-opened in early 2021. It is then expected to attract up to 350,000 visitors per annum, together with around £9 million of annual tourist spending. Work is being undertaken on the Castle itself, the Ducal Palace and a labyrinthine cave system within the Castle Rock. • Nottingham Forest FC Stadium: this £100 million redevelopment scheme is designed to increase the club’s capacity to 38,000. It will entail improvements to three existing stands, and the construction of a new three-tier stand that will also include a museum, hospitality facilities, restaurants and executive boxes. A video describing the scheme can be found on the Nottingham Forest website. • Boots factory site redevelopment: outline planning permission has been granted for a £750 million scheme to build new offices, a hotel and a mix of residential and student accommodation.
This is just a selection of the many urban regeneration projects that are now in progress in Nottingham. Some – like the HMRC office development – will generate jobs almost immediately, while transport improvements and business support schemes will tend to have more of a slow-burn effect. Collectively, however, they should all have a positive impact on the economy and on market conditions for property investors.
Business Growth in Nottingham In February 2020, Ernst & Young published its latest Regional Economic Forecast, which found that over the last 12 months, the East Midlands economy had grown at a faster rate than any other UK region. GVA rose by 1.6% and employment rose by 3.4%, which was more than double the average for the UK as a whole. What’s more, EY expects this impressive performance to continue. It predicts that Nottingham in particular will fare well, achieving year on year growth of 2.1% between now and 2023, which is some way ahead of the projected UK norm of 1.8%.
Although the city has roots in manufacturing and textiles, Nottingham is working hard to reposition itself. Today, some of its fastest-growing industries include: • Advanced manufacturing • Digital and creative industries • Distribution and logistics • Financial and business services • Life sciences • Tourism This shift towards more forward-looking sectors is important. Nottingham is projecting steady growth in employment over the next decade, boosting job numbers by 39,000, but, unlike many cities, it is not making job creation a central objective of its economic plan. Rather, it is committed to changing the pattern of local employment; moving more people into higher-skilled, better-paid roles. This is significant for property investors because if more local people take up more professional, higher-paid jobs, so the average spending power of tenants improves. This helps to boost demand for higher quality rental accommodation, while a general improvement in living standards can also help to fuel an upward movement in average house prices. D2N2 explains its rationale as follows: “There will not be a lot of new labour entering the economy between now and 2030, so we must find ways of producing more output with the labour we have. We need to enable workers at all levels to move up into the more productive, better-paid jobs, and raise workforce skills levels to respond to the economy’s future needs.”
Nottingham’s Universities Nottingham’s property market is boosted by the presence of two universities, which help to ensure steady seasonal demand for rentals. The University of Nottingham has a student body of approximately 32,000, while Nottingham Trent University has approximately 33,000 undergraduates and postgraduates. In addition, Nottingham is home to the Queen’s Medical Centre, one of the country’s largest teaching hospitals. In addition to attracting these many thousands of potential student tenants, the education sector sustains huge numbers of local jobs. Nottingham University has published an economic impact analysis, which offers the following data: • • • • •
Total economic impact (UK-wide): £1.1 billion Economic impact across Nottingham: £677 million Number of direct employees: 7,293 Jobs supported in Nottingham: 14,000 Expenditure in local supply chains: £32.9 million
These numbers relate only to Nottingham University, so the economic impact of the wider education sector will clearly be bigger still. The various institutions support thousands of local jobs, which will have an important effect on the property market, and they attract thousands of visitors every year, in the shape of students’ parents and friends, contractors, visiting academics, business delegates and others. In this respect, they also help to maintain healthy demand for shorter-stay lets and serviced accommodation. Different sources quote differing estimates for average gross rental yields on student accommodation, but they typically range between 5 and 8%.
Nottingham’s Housing Market According to the March 2020 UK Cities House Price Index, which is published by Hometrack using data from Zoopla, Nottingham achieved the highest rate of house price growth anywhere in the country. In the 12 months to March, average values rose by 4.1%, which represents a far better return than the UK-wide mean of 2.1%. Again, different sources produce different data but they generally indicate high rates of returns on rental properties in Nottingham. For example, the property website The Motley Fool produced a list of its top 10 ‘best buy-to-let locations for 2020.’ This suggests that average prices in Nottingham have risen by 19% since 2014. Importantly, these impressive price gains also coincide with strong rental yields. The Motley Fool data suggests that Nottingham properties delivered average yields of 5.4%. Similarly, in March 2020, the online magazine Property Investor Today published findings from the lettings platform Howsy, which placed Nottingham third overall in the UK, trailing only Glasgow and Belfast. It estimated that the average buy-to-let property in Nottingham delivered an average yield of 5.46%. Both sources have therefore arrived at figures that are very similar – and equally impressive. Other sources offer more detailed, granular figures, which are potentially more useful because they are less subject to city-wide averaging out. For example, according to market information published by PropertyData, which publishes yields by postcode, Nottingham’s central NG1 postcode produced a yield of 7%. Some outlying postcodes in the same city were delivering yields of less than 3%, which goes to show the importance of doing the proper research and choosing exactly the right locations. Looking at various sources over various timescales, it is clear that rental properties in the right parts of Nottingham have been delivering some exceptional returns. The important question is whether these trends will continue.
Property Market Predictions for 2020 At the time of writing (April 2020), industry commentators have been very conscious of the possible economic impacts of the coronavirus pandemic. There is no clear agreement as to how it might affect the UK buy-to-let market in 2020 and beyond. However, it’s a storm that property investment markets across the world are forced to weather and Nottingham is no different. In short, it remains a level playing field and, all else being equal, Nottingham is particularly well placed to emerge strongly from the lockdown. On 27th March 2020, Savills published a special note regarding house prices and Covid-19. It noted that: “The central scenario for most economic forecasters is a sharp, short economic contraction in 2020, particularly in Q2, followed by a rebound in late 2020/early 2021. For example, as at 19th March, Oxford Economics was predicting UK GDP will fall -2.5% in 2020 Q2 and rebound +1.8% in Q4.” After setting out some possible short-term impacts, Savills’ article states: “Assuming long term damage to the economy is contained, we expect the five-year outlook for prices to remain similar to our November 2019 forecasts but with a different distribution of growth year to year.”
For reference, that November forecast predicted average capital growth (UK-wide) of 15.3% by 2024, and growth of 18.2% over the same period in the East Midlands. Other commentators have different opinions, of course. Generally, however, there is an expectation that the outbreak will mean short-term hits to transaction volumes and average prices, but that these will be offset by solid gains in 2021 and beyond. In April 2020, for example, Knight Frank predicted that UK average values would fall by 3% over the course of 2020, before rebounding by 5% the following year. It has not made any region by region predictions and, for the time being, most other industry experts are withholding judgement. Most are choosing to wait and gauge the effectiveness of the government’s economic ‘safety net’ measures before venturing an opinion. No one can foresee how widely and for how long the coronavirus will affect the UK buy-to-let sector but while market activity is bound to be suppressed for a while, Nottingham will continue to display all the right signs for property investors. The undersupply of housing will not change any time soon, and nor will the strength of rental demand. Property prices will remain affordable and, once the pandemic is past, a raft of major urban regeneration projects will only improve Nottingham’s appeal.
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