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We share where we think will be the best places to invest in UK property in 2020.
Where will the best places to invest in UK property in 2020 be? One Touch Property looks at some of the key drivers that will push towns and cities into the investment spotlight.
Like the UK, co-working space in South Africa has seen huge growth since 2000. As more and more people see the benefit of working in open-plan, flexible offices. WeWork have recently established three centres in South Africa, one in Cape Town and two in Johannesburg. Companies such as The Workspace are reporting occupancy levels of up to 80%. The introduction of co-working spaces has a positive effect on the local economy, with an average of 265 jobs created in areas with a workspace and R30.8 million going into the local economy.
Flexible workspace is attracting start-up companies to towns and cities which offer it. This type of workspace offers more flexible contracts where businesses do not have to give much notice to get out of, and at a lower price. Usually there will be no fixed space and hotdesking is a regular occurrence. It’s understandable that a start-up business would favour a flexible contract as opposed to a traditional office. In times of uncertainty, new businesses would not necessarily know whether they need to scale-up or scale-down operations, so having a space which can afford them either is vital. With the surge of start-up businesses and flexible working conditions, young professionals will follow. It’s not just start-up companies that will utilise flexible workspace. Research conducted shows that 69% of global corporations plan to increase their usage of co-working spaces. 44% have started that flexible space will comprise one-fifth of all office space within the next three years. 75% have stated that it will increase personal productivity and 55% have stated it will allow for increased flexibility. The demand is clearly there, and it is up to towns and cities to provide it.
Flexible workspace in the UK
With the migration of flexible workspaces to key cities outside of London, it is estimated that this type of working could contribute over £12 billion to local economies over the next decade. The uncertainty of Brexit continues to shape Britain’s economy and allowing people to work from flexible locations could provide a boost to local economies. More often we are seeing businesses basing employees outside of London to explore more cost-effective areas. Not only do flexible workspaces contribute to the local economy, they also contribute to the local area in terms of Gross Value Added. Development Economics published a report that stated each co-working centre will generate £20 billion GVA each year by 2029, £12 billion of which will go to local economies. This has a direct influence on the career opportunities and earning potential of residents. If residents have access to employment opportunities and can earn well, it will affect the property market and housing demand will increase.
According to research from the Resolution Foundation, fewer young people are moving for jobs than they were 20 years ago. In 1997 30,000 young people moved home to start a new job, compared with just 18,000 in 2017. This is due to several factors, including being restricted by moving costs and rents. If towns and cities want to attract new businesses and keep a young workforce, they need to provide more flexible workspaces.
Here are what we think the best places to invest in UK property in 2020 will be.
Leeds
Leeds has had a relatively slow take-up of flexible office spaces up until recently. For the first half of 2019 only 7% of total office take-up was from flexible workspace operators. In Leeds, flexible office space only accounts for 3.8% of total office stock in the city, but by 2023 this is predicted to rise to 6.7%.
Not only is Leeds getting some better employment opportunities, it’s already a good place to live and work in its own right. It has a low unemployment rate of 4% and a quality of life score of 7.76 according to the Times.
In 2019 JLL selected Leeds as the top spot for house price and rental growth, predicting house prices to increase by 17.1% by 2023. Likewise, rental growth is also predicted to increase by 17.1%. We think the emergence of flexible office spaces will contribute to sustained property growth as people look for jobs in new companies.
One such opportunity is Riverside Mills, a buy to let in Leeds city centre. Prices start from R2.67m and there is a potential for up to 8% returns. Riverside Mills is in the South Bank Regeneration Area. The aim of the regeneration project – dubbed the largest in Europe – is to expand the city centre of Leeds to twice its original size and be the epicentre of upmarket restaurants, cafes and green spaces. Once completed it will be one of the most sought-after destinations in Leeds.
Newcastle
The amount of flexible office space in Newcastle has grown at some of the fastest rates in the UK. In 2017 the number of co-working spaces increased by over 12%.
According to research by Paymentsense, the number of start-up businesses in the north east is growing at one of the fastest rates in the country. At the end of the 2017/18 financial year, there were 45,498 start-up businesses, an increase of 20.8% from the previous year. The growth in flexible office space is a response to accommodate the number of start-up businesses. One example of a flexible office space in Newcastle is the Toffee Factory in Ouseburn. Just a twenty-minute walk from Newcastle’s city centre, Ouseburn houses the north east’s creatives and offers a plethora of hip bars, farm-to-table eateries and live music venues. The development of neighbourhoods such as this have encouraged young people to live and work in the north east city.
After graduation, over a third of Newcastle’s students stay to work in the city – the 9th highest rate of all UK cities according to Centre for Cities. It’s likely that the growth in flexible office space will bring about more diverse employment opportunities and encourage even more graduates to stay.
House prices in the north east are expected to rise by 17.5% by 2023, from a rather modest average of R3.8m. Newcastle’s NE6 postcode was named by Benham and Reeves as being one of the best places to invest in the UK to achieve high levels of rental yields.
Birmingham
Birmingham’s flexible workspace take-up exceeds that in many other UK cities. According to a study by Cushman &Wakefield almost 230,000 sq. ft of space was let in the first half of 2019, representing 40% of total take-up. It’s an attractive city for flexible workers, and with areas such as Digbeth having been transformed into a centre for creatives, there is a huge appetite for this type of workspace.
Birmingham’s ideal location means that other key regional cities are within a two-hour reach, which is convenient for those who work remotely but occasionally need to travel to different business sites. The regeneration it has experienced and the incoming HS2 rail project which will improve travel times between Birmingham and London has made the city attractive to businesses and residents alike. Over the past year, property prices have sky-rocketed by 5.8% to an average of R3.5m which is three times the national average, according to data from HM Land Registry.
A recent report has demonstrated a strong correlation between employment prospects and property prices. Birmingham has seen a 12% rise in employment and a 23% rise in house prices. As the amount of flexible workspace increases, it’s likely to continue positively affecting property prices and result in a city with a booming economy offering work in a variety of sectors.
As we mentioned previously, Digbeth is one area that has been transformed into a creative hub, and the appetite for flexible workspace in the area is unrelenting. Westminster Works is one Birmingham property investment in Digbeth with prices starting from R3.3m. A 15% deposit is required, and it is expected to achieve a yield of around 6%.
Liverpool
Flexible offices in Liverpool have been growing at the fastest rate in the country. In 2018, co-working and serviced office space accounted for 10% of the market, with newcomers Clockwise and CityBase coming onto the Liverpool market. According to Instant’s Entrepreneurial Index, some of the highest demand from flexible office space has come from start-ups, particularly in Manchester and Liverpool.
Having struggled economically in the past, Liverpool still has a lower-than average property price of R2.34m. This is already accounting for the 4.6% increase over the past year according to Zoopla. To us, this suggests that there is still plenty of scope for house price growth. With new businesses setting up in the city and an improving economy, we will continue to see demand for housing from young professionals providing good rental yields and levels of capital uplift.
At One Touch Property we offer various Liverpool buy to let investment opportunities to suit most budgets in pockets of the city experiencing vast amounts of regeneration.
Edinburgh
The boom in the technology sector in Edinburgh is in part attributed to its offering of flexible office space. Technology companies have taken up 34% of office space in the first three-quarters of 2019. The number of jobs in technology, media and telecommunications is set to increase by 21% over the next decade.
Edinburgh benefits from the highest graduate retention rates in the UK outside of London at 47%. Edinburgh’s graduate population stands at 50,000, with 57% of them considered ‘skilled’. The talent found in Edinburgh makes it an ideal city for growing technology companies. It’s no surprise people who study in Edinburgh want to stay there; in 2018 it was named in a study conducted by Arcadis as the best place to live in the world. Edinburgh boasts a low crime rate, good health of its workforce and high levels of education. As Edinburgh is a coveted place to live and work, it’s no surprise property prices are rising quickly. JLL has predicted that property prices in Edinburgh will increase by 16.5% by 2023 – ahead of Scotland’s national average of 11.5% and the UK’s overall expected increase of 11.4%.
In conclusion, we feel that one of the biggest drivers in property price increase will be the boom in flexible working spaces. Towns and cities that offer flexible working spaces will prove to be some of the best places to invest in property in 2020. There has been a shift in the employment landscape in the UK. More people are going self-employed and with rising commercial real estate prices in cities such as London, businesses are looking to incorporate more flexible workspaces to save money and attract talent from other cities who are not looking to relocate. According to the Office for National Statistics, the number of people registering as self-employed has risen rapidly between 2001 and 2017 from 3.3 million people to 4.8 million. As per research from Knight Frank, 69% of global corporations plan to increase their use of co-working space over the next three years, and 44% believe co-working space will comprise a fifth of their workspace.
The increase in this type of workspace will encourage new businesses to new cities, as we have seen and encourage graduates to stay in the city in which they graduated. A booming employment market that provides opportunities to young professionals will attract them, and in turn they will require housing. In the case of Birmingham, the 12% rise in employment translated into a 23% rise in house prices, as property becomes more in demand.
Places such as Birmingham, Leeds, Liverpool and Newcastle already have modest average house prices. They are each seeing an emergence of creative and tech sectors, and areas such as the Baltic Triangle in Liverpool and Digbeth in Birmingham have really come into fruition. Co-working space in Leeds initially had a slow take-up but has since accelerated and its strong local economy combined with JLL rating it as the top place for house price and rental yield growth, makes it an ideal city to invest.
Edinburgh has slightly higher house prices, but already benefits from a highly skilled workforce and one of the highest rates for graduate retention. This highly skilled workforce has been identified and flexible office space is increasing, along with a booming tech sector. The emergence of new sectors gives graduates more employment options, in turn raising demand for property as they move from student accommodation to residential. This is also reflected in JLL’s prediction that prices will increase by 16.5% by 2023, above the national average.
South African business confidence slump
In 2019, business confidence in South Africa slumped to its lowest level in 34 years. This is mainly because of the turbulent situation in the country as it is facing frequent power cuts, losing its investment-grade credit rating and the failure of the government to get a hold of public finances. Fears for public utility company Eskom had caused the World Bank to cut its growth forecast for South Africa.
Sentiment had peaked when Cyril Ramaphosa won the leadership of the ANC in 2018 but has ebbed away ever since as many of the changes Ramaphosa promised were slow to be rolled out or abandoned altogether. It appears confidence that Ramaphosa will turn around the situation in South Africa is waning.
Property owners are also experiencing difficulties in renting out their flats. According to research from Rode & Associates, the vacancy rate jumped from 5.5% in the first quarter of 2018 to 7% in 2019. Low demand has also affected rental growth, as has the stock of new housing.
The slump in business confidence, coupled with the difficulty investors are experiencing in getting their properties occupied means that many are looking to invest overseas, especially when it comes to property. In the UK there is a housing shortage and the number of vacant homes has been steadily declining. In part this is due to government measures to encourage people to sell if they leave the home vacant, for example by charging a 100% council tax premium on empty homes. The shortage of housing in the UK coupled with a good rental market makes the UK an ideal place to invest in property.
Here at One Touch Property we build a property sourcing strategy to locate areas with highest growth fundamentals that can be applied to other areas Sign up to our newsletter to receive more UK property market news.
An investment consultant from One Touch Property Investment will be over in South Africa from the 5th February – 14th February 2020 in Cape Town, Durban and Johannesburg. They will provide one-on-one consultations and provide guidance on the UK property market. Click here to arrange a personalised consultation with a property investment consultant from One Touch Property Investment and learn more about UK property investments.
Where do you think the best places to invest in UK property in 2020 will be?
