The United Kingdom currently boasts some of the most valuable investment real estate on the planet, if not the most valuable. In terms of both capital appreciation and rental yields, the country is among the safest of safe havens. Stability, transparency, constant demand, limited supply and an appealing lifestyle are among the factors that have made the country enormously popular amongst investors from around the globe.
But that should be qualified. Prime central London is one of the world’s strongest investment markets and most advisories will separate its statistics and forecasts from the rest of the UK. The question becomes one of whether that discrepancy has any real validity. The most basic key to property investment is buying low and selling at a profit. Prices in super-premium London right now are flirting with £6,000 per square foot (HK$76,000) according to research by global property agency CBRE at the end of 2012 — ahead of our own fair Hong Kong (£5,500/HK$70,000), New York (£5,300/$67,000) and Sydney (£4,400/$56,000). At a more reasonable level but still in prime districts such as Kensington, Chelsea and Westminster prices hover around £1,500 per square foot (HK$19,000). Rental yields on average range between 4 and 7 percent.
The numbers, indeed, are impressive, particularly in light of their constancy. But London property is hard to come by and London certainly isn’t the only city in the UK worth looking into. Cities like Birmingham. Located in the West Midlands, the diverse city of just over one million could arguably take credit for the Industrial Revolution. Without Birmingham there would be no 12-hour flights to the other side of the world or Facebook. Now Birmingham is a crucial regional transport, retailing and conference centre, and the city recently launched a massive, multi-billion pound redevelopment plan for the city centre, with major property players like regeneration specialists Urban Splash, Make Architects and London developer Ballymore throwing their hats in the ring. Just in time too. BNP Paribas, in its most recent Housing and the Economy report noted that, “Local authorities will play a pivotal role in bringing new development forward, as they will be the major determiner of new housing supply in the region … It will remain up to developers to find new innovative ways to make schemes viable.” Time will tell if Birmingham sales launches like the ones so common for London become a regular feature in Hong Kong.
Perhaps not surprisingly, though Birmingham made its mark as a manufacturing hotspot, its modern economy is rooted in services (HSBC was at one time Midland Bank), education, healthcare and public administration. Tourism (stemming from trade and convention travellers that account for almost half in the UK) and retailing are increasingly factors in the city’s economy as manufacturing has dwindled, though Jaguar Land Rover and Cadbury still maintain plants in the city. Birmingham has a highly accessible fine arts and sporting scene, and perhaps in line with its industrial past, it also gave us Black Sabbath. End of discussion. So why hasn’t it hit the investment radar yet?
Jones Lang LaSalle is forecasting a slow year for the Midlands region with prices dropping 1 percent in 2013, but it’s also predicting steady growth at .5, 1.5, 3 and 3.5 percent per year from 2014 to 2017. Tight financing in the UK is expected to keep rental demand high and even a steadily improving economy overall is unlikely to translate into home sales quickly. However, Birmingham’s service-heavy economy could set it up for long-term health. JLL’s 2012 Residential Eye report stated, “Employment growth will be heavily skewed towards professional services, business services and business support. With such industries concentrated in London and the South, plus a few key urban centres, these regions will be the focus of over 50 percent of new jobs.” And new renters. BNP Paribas is even more bullish on the West Midlands. “Over the next five years both the East and West Midlands’ house prices are forecast to climb on average by 3.9 percent per annum and 4 percent per annum respectively. This rate will be just behind the 4.5 percent per annum growth forecast for the UK,” the bank’s real estate division research stated, with West Midlands pulling ahead slightly performance-wise. BNP thinks the East will shine in 2014, but both regions will bounce back strong in 2015 and beyond, ultimately meaning, “Both the East Midlands and West Midlands will see overall house price growth of 18% in the decade to 2016.”
Birmingham’s status as a preferred investment destination will rely a great deal on how its urban renewal plans turn out, and investors in the city remain primarily local residents and buyers from London. International buyers make up less than five percent. But it should be remembered that for every superlative in the UK that falls to London, Birmingham is number two. For that matter, Vancouver, Melbourne and Los Angeles are number two as well, and things seem to be working out for them just fine.