Birmingham’s next revolution

Though it’s the UK’s second largest city, Birmingham is first among second-tier investment choices.

London will always likely be the first choice for those looking to make significant investments in the UK, but Brummies have a lot to be proud of these days.

The West Midlands city of nearly four million (in the metro area) has forced international investors to sit up and take notice in the past few years – long before Brexit, long before the Scottish referendum and long before Trump’s new world order.

The city, once in the shadow of London (which is about two hours away), is blossoming in its own right because of an appealing cocktail of infrastructure investment, population growth and affordability.

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Contrary to popular perception, Birmingham ticks many of the lifestyle boxes young tenants and first-time buyers, Millennial workers and contemporary employers demand in both commercial and residential space, including urban walk-ability, green amenities and a vibrant street life.

It boasts rich arts, culture and dining scenes (with the most Michelin-starred chefs cooking in it outside of London); spectacular industrial revolution architecture; an English Football League team (a level down from the Premier League); and a history of innovation – from the invention of the modest whistle (which referees and traffic cops would be lost without) to heavy metal (Black Sabbath is from Brum).

But PwC (PricewaterhouseCoopers) and the Urban Land Institute’s “Emerging Trends in Real Estate Europe 2017” ranks Birmingham at only number 22 in Europe for overall investment prospects this year, ahead of Manchester (23), Edinburgh (24) and London (27) – but behind the likes of Berlin (one), Dublin and Madrid.

“Brexit could entail a double whammy for property investment in UK regional cities. Not only does increased uncertainty appear to be deterring investors from second-tier markets, but if yields in London soften, the appealing cheapness of secondary markets compared with the capital will diminish,” PwC said.

The report also cautioned against a possible flight to core (meaning London) and regional cities’ capacity for their economies to stand alone. Nonetheless, PwC did admit: “Office take-up in Birmingham in the first six months of 2016 was very healthy, exceeding 500,000 square feet, 57% more than the five-year average for the first half, according to CBRE.”

Thomas McAlister, head of international residential at Savills, is quick to point out that HSBC, Deutsche Bank and, ironically, PwC have all recently relocated to Birmingham from London, and that office occupancy in the city has risen 105% in the past decade.

That, combined with five top-tier universities, 75,000 students and a diversifying modern economy has made Birmingham an investment hotspot several years running.

Infrastructure is also playing a large part in that. A £550 million upgrade to Birmingham’s central New Street Station has made it the busiest interchange outside London, and the forthcoming High Speed 2 (HS2) rail link puts London itself just 45 minutes away.

The city’s position in what is arguably the middle of the UK makes it ideal for national and multinational offices – affordably. Birmingham prices are hovering at pre-GFC levels, saving corporate occupiers upwards of 60% in rents alone. That affordability extends to the residential sector as well.

“Fiscal measures may have cooled the London market, but regional house price growth has accelerated and the buy-to-let market looks relatively unscathed,” said Colliers International in its January “United Kingdom Property Snapshot”.

In addition to rising values, on its blog Savills’ McAlister noted of supply: “Post-GFC levels of build have been low, with a new wave of housing creation only beginning recently, at a time when the city is growing rapidly and also features the highest level of returnees from London in the UK. Forecasts show demand circa 4,000 new homes per year while supply is currently averaging circa 2,000 new homes per year.”

Supply, or a lack of it, is the magic word for investors, and although Birmingham is also falling short on supply targets, stock is there for savvy buyers.

Projects such as town houses and flats at Taylor Wimpey’s Highfield Gardens II, roughly three kilometres from the landmark Brindleyplace, and Redrow’s three and four-bedroom houses on the outskirts, are often priced for less than £400,000 (HK$3.9 million).

Seven Capital’s Regency Place, 82 flats in the city centre, is surrounded by heritage buildings in the historic Jewellery Quarter and sits walking distance from the renewed train station. The luxury, low-density development features hardwood floors, brushed steel ironmongery, energy efficient LED lighting, and optional furniture packages for studio to two-bedroom flats. Seven is projecting rental yields of 7% and capital growth of 20%. Scheduled for completion in 2018, prices begin at about £180,000 (HK$1.75 million).

Finishes McAlister: “With strategic positioning, excellent connectivity, significant investment and the backing of some major global corporations, Birmingham is most definitely a city on the up. When these factors are coupled with relative affordability, an attractive migration story of a talented workforce and a lack of suitable housing it’s clear why Birmingham is gathering traction as a destination for property investment.”