Overseas investor appetite for prime property in leading regional cities is on the rise and rising. A growing number of investors are looking to the big six regional cities as an alternative place to London to invest in. Large scale investment in the commercial & retail sectors have been made in; Birmingham, Manchester, Edinburgh, Glasgow, Leeds and Bristol.
Birmingham in particular is a hot location due to HS2 the high-speed rail link.
The Government is also backing this initiative, in July 2015 David Cameron led a delegation of leading property specialists to Singapore & Malaysia to raise the profile of investment in the North of the country in order to balance the economy by creating jobs and opportunities across the nation.
Over the last 2 decades investment in the regions has been led by open ended German funds who have been the most active. The two major players are Union & Deka investing in prime assets yielding 5% to 6%.
There is a strong focus on the private rental sector (PRS) that is becoming increasingly more attractive as the number of homes fail to keep up with growing demand. Demand for housing is being driven by an ageing population, inward migration and more people living alone.
The number of households required are reaching 225,000 yet only 150,000 homes were completed in 2014 (source Estate Gazette).
Price increases of 5.4% in 2014 (according to Savills) twinned with the increased cost of moving has made renting the natural alternative.
The government is also actively promoting institutional investment into the PRS. According to the Residential Landlord Association close to 70% of rental units are owned by individual private landlords, with many becoming landlords unintentionally through inheritance, marriage etc.
Most private landlords have less than 4 units to rent with only 2% of landlords holding 10 or more units. This cottage industry means that supply is not long term and often properties are not properly managed or maintained.
All that is changing as more regulation is introduced to encourage longer term tenancies and properly managed and maintained properties.
Since 2013 there has also been a large number of tax and stamp duty changes all designed to create incentives for large scale institutional investment for the medium to long term.
Renting is becoming a lifestyle choice for nearly 20% of the population as raising costs of finance and transactions make buying a property unaffordable for a growing number of people.
Cities that have international appeal or are within easy commuting distance to London are ones to watch. Locations such as; Manchester, Edinburgh, Oxford, Cambridge, Birmingham, Southampton, Bristol & Brighton are all on the investor radar.
The PRS offers better rental growths than other asset classes. Homes are a necessity and when the market goes down rents stay strong. People look to rent in times of uncertainty and as buying becomes too costly. Rents also grow at a higher rate than the the cost of living.
The UK may be evolving to the German PRS model. In Germany, unlike the UK, the majority of the rental stock in is owned by institutions and over half the population rent. Government created incentives for institutions is how the German model came to be, a route the UK Government is now taking.
As the scale of investments grow, economies of scale set in and the cost of running the assets become less creating better yields.
The UK student market is also a popular asset class to invest in. The UK education system has massive global appeal. There are over 800 colleges and universities in the UK and some 2.5 million students. It is a low risk high yield sector that has seen 4.2bn pounds of investment in just the first 5 months of 2015 according to Savills.
The emphasis is on modern & good quality rather than the poorer conversions that the some private landlords have been offering to students.
Colleges and universities also want modern accommodation that is close by and, better still, on their campuses. These deliver much higher yields with almost no vacancies, returning tenants and referrals.
Students will pay huge premiums for quality, according to Knight Frank this can be up to 75% more.
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Source: Estate Gazette