Why Invest In Birmingham Buy-to-Let Property 2020
Introduction to Birmingham
The most populous city outside of London, Birmingham is experiencing a true period of change that is transforming the landscape. Over the last decade, Birmingham has laid the foundations for growth with the Big City Plan, a project designed to revolutionise infrastructure alongside the residential, commercial, retail and leisure sectors. This approach to building positive change has meant Birmingham is now attracting immense accolades such as the 2022 Commonwealth Games, ensuring the city’s position on the world stage.
It also means that Birmingham is generating incredible levels of tenant demand as people flock to the city-centre. In turn, we’re seeing property prices and rental yields skyrocket, signposting the area as a key market for investors. Knight Frank forecasts that residential property prices will rise across the region by nearly 11% over the next five years, while demand means Birmingham will need between 12,000 and 18,000 new homes.
In terms of population, this demand translates to an increase from around 1.1 million residents to 1.3 million by 2039, a huge step that is actively contributing to the residential undersupply occurring across the city. This makes the rental market in Birmingham incredibly competitive and highlights the strength of returns that a Birmingham property investment could deliver.
Birmingham’s 2020 Economic Outlook
Birmingham’s population continues to excel as a workforce. With around 520,000 workers identified at the end of 2018, Birmingham is leading the way for employment amongst the UK’s regional core. Since 2010, Birmingham has seen employment grow by 11%, demonstrating the strength of its medium-term growth. With one of the major objectives of the Big City Plan aimed at increasing the size of the city core by 25% and thus, delivering 50,000 new jobs for the city, it’s expected that this number will continue to rise going forward.
In terms of economic output, Birmingham has seen a rise of 3.6%, taking the GVA to +£985 million according to the Birmingham City Council Q3 Update. Similarly, the number of active businesses has risen by 4.8%, a direct rise of 1,995. With 460,000 young people in the city under 25 (accounting for 38% of the city’s overall population), younger professionals are being attracted by the career opportunities available, which is driving house prices and commercial redevelopment. Birmingham maintains an economy of around £28 billion, making it one of the highest-performing in the country.
Birmingham Regeneration Projects
The Big City Plan is the most important driver behind Birmingham’s regeneration. Starting with the Bullring and set to run over 20 years, the Big City Plan is capturing the imagination of the wider UK, building iconic new developments, mixed-use office space, incredible transport links and transforming the Birmingham landscape.
As one of the first major milestones of the Big City Plan, the Bullring opened in 2003 and created a true retail destination for the city. Since then, a wave of regeneration has swept through Birmingham, resulting in the next major milestone – Grand Central. A complete redevelopment of New Street Station that links the Bullring with the train network, Grand Central is a stunning first impression to the city for visitors.
Looking to the future, the Big City Plan is further improving infrastructure and development space in the city. HS2 and the Midlands Metro Extension will be particularly effective, directly linking Birmingham with London and the wider West Midlands region respectively.
High-Speed 2 (HS2)
HS2 is a ‘generational’ development for the city. Effectively turning Birmingham into a commuter destination for the capital, HS2 is Europe’s largest infrastructure project and will see travel times between London and Birmingham slashed to under an hour. As well as offering better connectivity between workers in both cities, HS2 has also helped kickstart a £1 billion regeneration of the Eastside area of Birmingham where the HS2 interchange is expected to be located. With phase one due for completion in 2026, HS2 has already delivered 9,000 jobs, 7,000 of which are placed in Birmingham.
The first of two major mixed-use developments in the city-centre, Paradise is one of Birmingham’s most significant developments in a generation. A £700 million project that will introduce 1.8 million sq.ft of mixed-use office, retail and leisure space into Birmingham city-centre, Paradise will act as a gateway between the city-centre and the Westside of the city – home to Brindleyplace, the Library of Birmingham, the ICC and Birmingham Symphony Hall. Paradise is the site of the new PwC headquarters who have already agreed a pre-let for the first building in the project – the eight story One Chamberlain Square, due to complete in 2019.
Arena Central is the second major mixed-use development in Birmingham and a landmark for the city itself. As the site of the new HSBC UK and HMRC headquarters, Arena Central is fulfilling the need for quality residential and commercial space in the city, with over 1 million sq.ft ready to be let. The occupation of 3 Arena Central by HMRC was the biggest pre-let by the government in a decade and demonstrates the appeal that Birmingham holds as a destination.
One of the most exciting developments the city has ever seen, Birmingham Smithfield is a continuation of the Eastside regeneration that is sweeping through areas such as Digbeth. A 14-hectare site between Eastside, the Chinese quarter and the main shopping hub in the city-centre, Birmingham Smithfield is a £1.5 billion redevelopment of a site with a unique heritage as the ‘birthplace’ of the city, delivering 100,000 sq.m of floorspace, 1,000 new homes and create 3,000 new jobs. Adding £470 million GVA to the local economy, Birmingham Smithfield is aiming to build a new destination for the city, utilising public plazas and vibrant retail, leisure and commercial occupiers to create an iconic addition to the Birmingham landscape.
Amenities – Shop and Leisure
Birmingham’s retail sector has seen a huge shake-up over the last decade in the form of the Bullring, Mailbox and Grand Central. Much in the same way that the commercial sector and the professional sector is evolving, it’s an exciting time for Birmingham’s retail and leisure sectors. Primark Pavilions is arguably the biggest development in 2019 and will continue to impact the sector over 2020.
It’s this level of redevelopment and expansion that is helping shine a spotlight on Birmingham as a key destination for resident amenities. From the Michelin-starred restaurants throughout the city to the arts and culture scene that formed around organisations such as Birmingham Royal Ballet and Symphony Orchestra, Birmingham isn’t just creating a place to work, it’s also developing a scene where residents want to live.
UK Location and Connectivity
Birmingham is in one of the most unique positions in the country, directly connected with most major cities including Manchester, Edinburgh and London. Birmingham’s location has a huge impact on its attraction as a commercial hotspot, helping build economic success and encouraging further direct investment.
It’s this positioning that has meant Birmingham has consistently produced more businesses than anywhere outside of London. The number of startups recorded in Birmingham sat at around 18,000 last year and has incrementally increased since 2016. In the same time period, the number of active businesses in the area has increased three times faster than the UK average, creating an incredible commercial landscape for professionals flocking to Birmingham for its affordability.
This level of inwards investment and entrepreneurship has created a ‘perfect storm’ of demand for tenants. Birmingham has been one of the most popular destinations for professionals leaving London over the last three years and continues to attract both young professionals and families that want a more affordable market that can still provide excellent career opportunities.
With the completion of HS2 (planned to be around 2026), Birmingham will effectively become a viable commuter destination for London workers that want the affordability of a regional core but still work in the capital. This opens up Birmingham property investments to an entirely new market that would typically earn more than the average Birmingham wage.
Rising International Investment
Birmingham ranks as one of the most popular cities in Europe to invest in, outstripping even London. Currently attracting £billions of investment into the retail, leisure, commercial and residential sectors, Birmingham is using a targeted strategy of improving vital resident amenities to encourage more demand. This has also contributed to the rise of the largest professional services hub outside of London, which in turn has meant more people looking for quality living in the city-centre.
The city-centre also sees incredible demand from the student population it’s home to. With a student population of around 80,000 at last count in 2015 – made up of students from Aston, Newman University College, University of Birmingham, University College Birmingham and Birmingham City – the city’s top status as a student city means employers often have a wide range of graduates and young professionals to choose from. According to Savills, Birmingham produces 25,000 graduates a year and retains 49% of these, contributing to a broad and talented workforce that want to stay for the opportunities and amenities available.
House Price Growth Produces Lucrative Opportunities
There’s no doubt that Birmingham is leading the way in terms of house price growth. Since 2016, Birmingham property has experienced a market-leading 16% growth as redevelopment encourages price rises and demand grows. Birmingham’s population grew by 100,000 between 2006 and 2016, contributing heavily to the city’s continued undersupply of available homes.
Birmingham property prices currently sit at £205,440 and are much affordable when compared to the average London prices of £634,185, a 208% difference. It’s this huge gulf in price that makes Birmingham such an attractive prospect for investment – the second city is not only a more affordable initial investment but it’s also forecasting better performance in both capital growth and rental yields, demonstrating the current strength of regional cores against the traditionally popular London market.
Birmingham 2022: Building the Commonwealth Games
One of the largest events in the sporting calendar, the Commonwealth Games is a huge honour for any city that acts as a host. During the Summer of 2022, Birmingham will attract over one million spectators during the games, providing a massive boost for Birmingham’s local economy and delivering a wealth of opportunities for surrounding areas such as Perry Barr – which is set to host the Athlete’s Village.
- It’s expected that the 2022 Commonwealth Games will create, on average, around 4,500 jobs a year until the Games themselves, dropping to around 1,000 once they’re finished.
- Historical performance indicates that Birmingham 2022 will attract around one million spectators and be viewed by a global audience of £1.5 billion
- Initial forecasts pin the amount of investment into Birmingham and the wider West Midlands at around £778 million.
- £70 million expansion of the Alexander Stadium and the £60 million Aquatics Centre in Sandwell are two feature developments for the wider West Midlands
Conclusion – Is now a good time to invest in Birmingham?
It’s expected that in 2020, Birmingham will continue to experience growth across most sectors – from population to property prices. As key developments such as the Midlands Metro, Paradise and Arena Central draw closer to completion, Birmingham’s landscape will include more flexible, mixed-use space that can be used for a range of sectors. Similarly, infrastructure development will ensure that residents have the amenities they need to hand, particularly encouraging for the young professionals flocking to the city.
Preparations for the 2022 Commonwealth Games are expected to accelerate and development across the West Midlands will progress, creating new pockets of demand where amenities are nearby such as the Midlands Metro. Additionally, as the first wave of 5G smartphones begin to appear, Birmingham’s 5G testbed initiative will likely come online. This is a huge boost for the local authority and will ensure that Birmingham remains at the forefront as a progressive, state-of-the-art city.
Commercially, KWB believes that 2019 will end with a higher amount of commercial take-up than 2018 (over 750,000 sq.ft) and over the next two years, Birmingham will execute a development pipeline of one million sq.ft of new and refurbished stock, ready to meet the proposed demand. For investors, this demonstrates a clear intent by Birmingham to attract even more young professionals that want quality residential accommodation close to the workplace in the city-centre.