Where is the UK’s second city for property investment?

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Whilst Birmingham and Manchester compete over the UK’s “second city” status. They also compete on which place is more lucrative for investment. 

The birthplace of The Smiths vs the birthplace of Duran Duran; Manchester and Birmingham both contribute massive amounts to the UK in terms of culture. Manchester boasts two world class football teams and the infamous Eccles cake; Birmingham has the Balti Triangle and the most Michelin star restaurants outside of London. The recent regeneration of the cities, and influx of new companies means that they have become increasingly attractive to young professionals looking to kick-start their career. These two cities go head-to-head as we compare them to see which place is better for buy to let property investments.

Businesses moving to Birmingham and Manchester from London

Both Birmingham and Manchester are enticing professionals out of London. 7,620 people left London for Birmingham and 10,200 people left London for greater Manchester according to figures from the Office for National Statistics and Reach PLC respectively. Both cities have experienced a large amount of investment and some companies have been moving their headquarters from London to Birmingham and Manchester due to cheaper rents. Amazon are setting up their first building in Manchester later this year and the transformation of MediaCityUK has attracted brands such as ITV and Kellogg’s. Similarly, companies are finding Birmingham increasingly attractive, PwC has announced it will take up all the commercial space at One Chamberlain Square and BBC Three have moved part of their business to the city.

Young professionals leaving London for Birmingham and Manchester chasing jobs and a cheaper way of life

One reason why people are moving out of London in such numbers could be the cost of living, including rent and house prices. According to Rightmove, the average house price in Birmingham is £202,721 and in Manchester it is £203,203. This is compared to London which has an overall average house price of £618,065. Rent is also considerably cheaper in Birmingham and Manchester compared to London, which stands at a whopping £1,473 per month on average.

With more affordable rents and job opportunities like what is available in London, it is understandable that young professionals have been moving to Manchester and Birmingham. In fact, Birmingham has one of the youngest populations in Europe, with 40% of the city’s inhabitants being under the age of 25. Manchester’s city centre population has grown by 149% between 2002 – 2015 and job growth has been 84% between 1998 and 2015.

Areas such as Digbeth in Birmingham are attracting a young, artistic crowd and this is reflected in the number of creative working spaces and craft breweries that are popping up – mirroring the popularity of Shoreditch in London. One particular investment option in Digbeth is Moseley Gardens, a new development comprising 67 one and two-bedroom apartments. Due for completion in Q2 2020, one-bedroom flats in Moseley Gardens start from £185,000. These could be an ideal option for someone looking to live in the area, or the astute investor who knows Digbeth will soon be one of the most coveted areas in Birmingham.

Similarly, Salford Quays is an area in Manchester which has been propelled into popularity due to the creation of MediaCityUK and the relocation of broadcasting companies such as the BBC and ITV to the area. A waterside location with polished high-rise flats, it is like the Canary Wharf of Manchester.

Manchester’s city centre has experienced a lot of regeneration, from Spinningfields and Deansgate to Ancoats and New Islington. Local Blackfriars is a new development on Blackfriars Street close to the Northern Quarter and Manchester’s shopping district. Residents will be spoilt for choice in terms of eateries, bars and shops to explore. Local Blackfriars boasts impressive communal spaces and amenities such as a 24/7 concierge service, bistro, bar, a gymnasium, cinema room and fully equipped laundry room.

Birmingham v Manchester head to head in investment terms

With regards to population growth, Cushman & Wakefield estimate that Manchester’s population will swell by 56,000 by 2034. Between 2018 and 2028 Birmingham’s population is estimated to increase by 7.2% (81,400) according to Birmingham city council.

Although Birmingham’s population is predicted to increase more than Manchester’s, Manchester has a higher average house price indicating that property is more in demand in the northern city. Not only that, it got named as the best place to live in 2018 in the UK by The Economist’s ‘Global Livability Index”. Birmingham holds no such accolades, which may swing things in favour of Manchester in terms of how much people are willing to pay for homes in the area.

Graduate retention

Manchester and Birmingham are relatively evenly matched when it comes to graduate retention and attraction, probably due to the multi-national companies moving to the cities. These young professionals will obviously contribute to rental yield and eventually capital growth, as they will rent whilst getting settled in their career and will eventually buy. Manchester retains 51% of the city’s graduates and Birmingham retains 49% of all its graduates. Birmingham saw the third largest inflow of graduates who had no prior links to the city – just behind Manchester. 53% of those who grew up in Birmingham returned to the city after graduation, and it was 58% for Manchester. There is no great disparity between graduate figures and we do not think the difference will be enough to swing investment fundamentals in either city’s favour.

Rental yield and capital growth prospects in Birmingham and Manchester

Manchester performs slightly better than Birmingham in terms of rental yields, offering an average of 5.55% compared to Birmingham’s 4.61%.

In Birmingham, the average weekly wage is £527, this is compared to an average weekly wage of £512 in Manchester. Although not a massive disparity, the higher wages coupled with lower property prices could mean that in future residents in Birmingham are in a better position to buy property compared to residents in Manchester. A larger proportion of wealthy young professionals looking to buy property will obviously have a positive effect on capital growth. This is reflected in house price growth, with Birmingham edging Manchester slightly at 16% compared to 15% since June 2016.

Birmingham also has the advantage of more rapidly improving transport infrastructure. HS2 will shorten travel times to London from 82 minutes to 45 minutes. Being in the midlands, it is also easier to access other parts of the United Kingdom. Manchester’s transport infrastructure is also improving as part of the Great North Rail Project. All of Manchester’s train stations have been connected by a 300m long bridge called the Ordsall Chord which helped people travel across Manchester more easily, as well as making Manchester Airport more accessible.

So, where is the UK’s second city in terms of investment?

Manchester certainly commands higher rental yields, and more people have left London for Manchester compared to Birmingham. However, the transport infrastructure improvements in Birmingham will make it increasingly attractive and this is reflected in the fact that its population is due to increase at a higher rate than Manchester’s.

If investors are looking for a more short-term investment, we would recommend investing in property in Manchester as it is already attractive to tenants and buyers. Manchester has already enticed global companies and young professionals to the city. Longer term, is there scope for much more growth and regeneration? It appears Birmingham has more regeneration in the pipeline and room for property prices to increase more, whilst still allowing investors to buy into the market at a lower price.

Where should South Africans invest in the UK?

According to IP Global, Manchester and Birmingham represent two of the best cities globally to invest in property. Many from overseas would assume that UK property is too expensive and inaccessible but property in most areas north of London is considerably more affordable, and with the pound faltering against other currencies now provides an ideal environment for overseas investors to purchase UK property.

South Africans have already shown a sustained interest in Manchester, with construction company WBHO in acquiring a 60% stake in Russells Construction in 2018. Russells Construction is working on several developments in the region, including Three St. Peter’s Square and Axis Tower in the city centre. Both construction companies and investment funds are seeing opportunity in the Manchester market, and it could be a good option for individual investors looking to move their money out of South Africa. According to property portal Placebuzz, most searches have been made for investment in Glasgow and Birmingham, indicating consumer interest in those two cities as well.

You can download the brochure which compares the property investment fundamentals in both Birmingham and Manchester here > Birmingham v Manchester Property Investment Fundamentals

One Touch Property will be in South Africa visiting Durban, Johannesburg and Cape Town between 7th and 18th October 2019. They will be holding one-to-one consultations with potential investors providing them with guidance regarding the UK property investment sector and presenting investment opportunities in Birmingham and Manchester.

Contact them today to arrange a consultation.