UK real estate growth is currently strongest in regional markets, with Manchester leading the way. So what’s making the north-west a key investor hotspot?
For international investors, buying property in the UK has traditionally meant buying property in London.
The sustained growth of the capital’s prime real estate made it the logical investment location. The average property price in London in January 1995 was £126,295. By June 2015, this had risen to £611,340 in June 2015, representing a 384% return on investment.
Now, however, things have changed.
UK property assets have appreciated by 10% in the last 12 months. Yet it has been regional cities that have contributed most to this growth, with London’s house price inflation standing at just 5.2%.
Nowhere has this regional growth been felt more than in Manchester. Just this week Knight Frank reported that Manchester had seen commercial office investment sales in the third quarter of 2015 40% above the five-year quarterly average. Economic growth in the area, creating thousands of new jobs, means that businesses in the region desperately need new office spaces, prompting such high levels of investment.
It is performance that’s being mirrored in all of the city’s property sectors. So what’s making Manchester the epicentre of regional UK real estate investment.
1. A city at the start of a growth curve
Investing in a market on the brink of huge growth has the potential to reap big rewards. Just ask an investor who bought in London twenty years ago.
This curve underlined just how important it is to notice emerging markets and acquire assets early. But London is now reaching the end of this cycle, with Knight Frank noticing a fall in interest for real estate in the city from key international investor communities.
All evidence points to Manchester enjoying a similar type of growth curve seen in London over the next few years. Sustained job growth is driving the large-scale investment in the city’s commercial property sector – and these workers also need a place to live.
Manchester has been named by HSBC as the UK’s number one city for property investment, boasting yield growth almost 13 times the pace of those in London in recent years.
Manchester has also enjoyed 18% capital growth in the last 18 months. With an outlook of sustained economic investment, a growing population and shrinking supply of property, prices are expected to grow by a further 22.2% in the next three years.
And this is just the start.
2. 7 billion reasons to invest
Manchester is one of the core cities at the heart of the UK government’s Northern Powerhouse plans.
£7 billion worth of investment is planned for the region, as Britain attempts to rebalance the economic power of the country away from London. New devolved powers, high-speed rail links and enterprise zones with favourable tax conditions are just a few of the planned projects that will drive the economy of Manchester, bringing more visitors and creating new jobs.
Last month Chinese president Xi Jinping visited Manchester and announced a £4 million construction project kick started by Bejing Construction and Engineering Group (BCEG), as well as unveiling a new direct flight route from Beijing to Manchester with Hainan Airlines, which will begin service in 2016.
Such sustained economic investment will naturally impact on Manchester’s real estate market.
3. A young population that needs a place to live
It’s a city that people want to be part of. Manchester’s population is rising at three times the national average, yet it’s a city with one of the lowest levels of housing stock in the country.
What makes this imbalance more profound is the demographics of the population. Manchester is home to 60% more 25 to 29-year-olds than the rest of the UK. With changing attitudes towards homeownership in Britain and forecasts predicting that over 50% of 20 to 39-year-olds will be renting their property for 2025, Manchester’s population is seen as a ‘golden demographic’ in the eyes of many investors.
Institutions have already been quick to identify this opportunity. Deloitte Real Estate state that 10,000 new private rented sector (PRS) units are due to be built in Manchester over the next few years, investment that’s been predominantly driven by pension funds, insurance companies and private businesses.