In a survey conducted by Knight Frank last month, the UK came out as the top investment location in Europe for 2019. The survey involved 155 leading real estate investors representing organisations with over £500 billion of real estate assets under management.
These positive results should help alleviate fears of a longer-term negative impact of Brexit on the UK investment markets. In fact, more investors gave the UK as their preferred market than they did in 2017 and just 15% of investors identified geopolitical uncertainty as an impediment to their ambitions.
The build-to-rent (BtR) sector, or the Private Rented Sector (PRS) as it is also known, accounts for nearly 20% of all UK households. The sector’s output increased by 49% in 2017/2018 to 4,000 units, a figure that is expected to rise to 10,000 units over the next two years.
The burgeoning market, which involves developing purpose-built blocks of rental homes, attracted £2.4bn in investment in 2017 and is set to grow by 180% over the next six years.
The attraction is clear. For investors, they can achieve a stable, long-term income stream while tenants enjoy a streamlined experience and high-quality management. For the UK government, it offers a potential solution to the chronic housing shortage – with at least 300,000 new homes a year required to meet demand – which is why they have provided considerable support to BtR, including a £1bn build-to-rent fund.
While the BtR market is typically limited to institutional investors, companies such as the High Street Group (HSG) – one of the UK’s most successful private companies – are offering private investors a way in. Through our secured loan notes, private investors can invest in the HSG’s portfolio – which includes BtR developments – from only £25,000, getting guarateed returns of up to 22% per annum in exchange.
As Brexit draws closer and some choosing to adopt a ‘wait and see’ approach to property, we anticipate a slowdown in house price growth in Q1 and Q2 of 2019 in some areas of the UK before picking up again in the second half of the year.
The financial and professional services firm JLL have projected 1% growth in the first six months of the year, increasing to 1.5% in the last six months. Estate agents Strutt & Parker are more optimistic – forecasting 2.5% growth for 2019 and 18% over the next five years.
However, it’s important to note that the impact of Brexit, whatever form it might take, will not be felt uniformly throughout the UK. Due to enormous investment in infrastructure and regeneration projects and house prices currently lower than the rest of the UK, regional cities like Liverpool, Manchester and Birmingham are expected to continue to experience considerable growth. Areas of London on the other hand, with its already inflated property prices, are expected to flatline over the next couple of years.
Brexit has also opened up great opportunities for savvy private and overseas investors. The pound is currently close to its lowest value against the dollar since April 2017, creating a significant opportunity for those overseas. One-tenth of global mergers and acquisitions in 2018 involved a British firm as a target, the highest share since 2008, while 7% of international investors have increased investment since the EU referendum.
When it comes to commercial property, Brexit is also creating opportunities for cash-rich private investors. We are seeing more ‘Brexit clauses’ in commercial property contracts, stipulating that valuations cannot be guaranteed after March 2019. Even through clauses like this were often buried in the details of most contracts, having this front and centre is putting off some institutional investors. This has created a vacuum that private investors – who can take a longer-term view in the absence of institutional shareholders and short-term debt pressure – are swooping in to fill.
Of course, you need to take a long-term view when it comes to property investment. The demand for rented homes in the UK is showing no signs of slowing down, with recent research projecting the number to reach six million by 2025. The UK remains highly respected as a safe, politically and economically stable and desirable property location that continues to draw in investors.
The performance of the UK property market in 2018 gives reason to be optimistic about the future. Despite scaremongering newspaper headlines since the Brexit vote, average house prices have fallen in just one UK city out of 20 monitored by the Hometrack Cities House Price Index since. Their recent report showed “no immediate deterioration” in the outlook for prices or market activity following the vote.
Cities within the Northern Powerhouse enjoyed higher price growth and higher yields than anywhere else in the UK in 2018, fueled by major investment in infrastructure and regeneration projects, which has led to rapid population and job growth. At the same time, property prices are considerably lower than the UK average.
Average property price growth 2018: 6.3%
Average rental yield: 5.8%
Average property price growth 2018: 6.0%
Average rental yield: 7%
Average property price growth 2018: 6.2%
Average rental yield 2018: 5.2%
Average property price growth 2018: 4.7%
Average rental yield 2018: 5.7%
Average property price growth 2018: 5.4%
Average rental yield 2018: 5.5%
The Nothern Powerhouse already wields a total GDP of £300bn and growth only looks set to continue into 2019 and beyond, with major developments still underway and new ones set to start. The HS2 high-speed rail line should supercharge the buy-to-let market throughout the region when it opens, dramatically cutting journey times and opening up new opportunities for tourism and business. Other large developments include Sheffield’s £480m Heart of the City II project – which will secure 3,000 new jobs and create 1.5m sq ft of new commercial spaces – and the £5.5bn Liverpool Waters project that will transform the city’s derelict docks into a luxurious waterfront complex with high-spec offices and flats.
To meet the high demand for quality accommodation, new property developments with high-spec, luxury apartments are appearing across the key Northern cities – offering high potential returns for investors. Ones to watch include Bridgewater Wharf in Manchester, Westminster Works in Birmingham and Parliament Square in Liverpool.
While we forecast uncertainty to result in a drop-off in property price growth in the first half of 2019 for some areas of the UK, demand still greatly exceeds supply. We expect strong local economies and relative affordability to continue driving growth in the North in 2019, irrespective of the outcome of Brexit. Instruments such as the Secured Loan Notes from the High Street Group offer a way into the burgeoning BtR market for private investors while there is no better time for those looking to take out a mortgage for their buy-to-let investment, with interest rates predicted to rise from 0.75% to 2% by 2021.
Our team at Alesco are fully informed on the latest developments, projections and property opportunities across the UK with specialist experience and knowledge on the Northern Powerhouse market. For informed guidance on your property investments and advice on how to find the best property to suit your ambitions, contact Alesco today on 0203 819 7366 or email firstname.lastname@example.org.
Also published on Medium.