Why is Manchester a top property investment destination?By: Hamish Pound

For the UK’s economy,2014 was a milestone year, with many cities finally stepping out of the shadows and onto the path of recovery. Across the major cities, there were signs of growing confidence and the number of property deals – both commercial and residential – rose significantly. This has resulted in an increasingly hot London investment market, with prices rising by 11 per cent in 2014. This in turn led more people to look for opportunities outside the capital, with Slough, Sutton and Ilford appearing on the investor radar.

However, investors are increasingly looking north to expand their property portfolio and competition for the title of the UK’s second capital has heightened, with Manchester emerging as a clear contender.
 
According to recent studies, the city can expect to see its residential property prices rise by 22.2 per cent in the next three years – a development that can largely be explained by the basic principles of economics. A number of factors are driving Manchester’s promising returns, including government investment, private sector activity and consumer demand. Its economy is continuing to grow, followed closely by its residential property market. Offering value for money for businesses and individuals, the city has emerged as an attractive market for domestic and international investors.
 
Government investment

Investors are firstly encouraged by government endorsement. From George Osborne’s commitment to build a Northern Powerhouse, to his plans to bring in a directly-elected mayor, it is not surprising that savvy property investors are anticipating an ongoing trickle-down effect into the Manchester property market. Outlining GBP7 billion of spending, Manchester is at the heart of the powerhouse project and the primary target to kick off much-needed investment into transport infrastructure for the north. With commitment to improvements such as HS2 as well expanding capacity and connectivity in and around the region, investors are sensing the obvious longevity of the investment game.

Now also embarking on a road of devolution, the city has captured the faith and confidence of the government, further emphasizing the long term position Manchester has, and will continue to hold, for the UK’s future.

Private sector activity

It is not just the government who are confident. Over the last decade Manchester has undergone a transformation, evolving from an industrial hub into a multifaceted economy. It has steadily progressed into commercial sectors such as finance, research and technology. Its efforts have been closely watched by PLCs, who are finally releasing their closely-held capital from the recession, to expand again and find better value for money within British shores.
 
The city centre is a prime example. Championed by the Northern Quarter, China Town and MediaCityUK in Salford, the creative and financial services sectors are the biggest drivers of Manchester’s economic growth.
 
From RBS, The Co-operative Group, to Boohoo and JD Sports, the city is now home to the likes of Google, KPMG, Deloitte, Moneysupermarket and Thomas Cook. Over 60 FTSE 100 companies now have a base in Manchester, and other major firms are taking their lead – attracted by lower office rents, flexibility and a highly qualified and entrepreneurial labour pool.

The rise of corporates will also boost employment potential; and this cycle will only fuel the momentum behind the housing market. Attracted by more affordable operating and living costs, companies and their employees are able to benefit from the close proximity to London. 

Local demand

Cosmopolitan and welcoming, Manchester’s population is expected to rise by 128,000 over the next decade and the city continues to attract a flurry of university students. Just a short bus ride from Oxford Road to the city centre, the neighbourhoods around the University of Manchester are home to a large pool of temporary residents, tempting even more investors to snap up residential properties. The private rented sector accounts for 30 per cent of homes in Manchester, and a savvy landlord can expect to service not only the university community but the rising numbers of former London employees.
 
This year, HSBC highlighted Manchester as the second-highest yielding buy-to-let hotspot in the UK (last year it came fourth). The supply/demand imbalance also results in excellent potential for capital appreciation for investors.

Supply side

Some notable buildings, like the modern and unique Chips building within the New Islington regeneration project and planned new-builds, such as Axis tower, are transforming the city’s skyline. Latching onto the development of MediaCityUK, the growing number of waterfront residential buildings at Salford Quays are breathing new life into a once industrial area. Average city center new-build property prices are around the £160,000-mark for apartments, starting as low as £100,000 for a one-bedroom apartment – far more competitive than their counterparts in the capital and the south east, where a one-bedroom apartment can cost three-times as much.

However, the pure numbers of the Manchester housing equation are cause for a further rise in potential returns. In 2014 only 212 residential units were delivered to the market and only 1,426 units are expected to be brought to the market by the start of next year. The residential stock pipeline is still very much playing catch-up after the recession and is unlikely to meet demand for several decades.

The clear solution

Regeneration plans are ongoing in Manchester, supported by government backing. Increased commercial activity, coupled with infrastructure development, is creating long-term security for investors as well as short-term wins. The unique imbalance of demand and supply is creating a perfect window of opportunity for residential property developers and investors.

While prices remain below their peak by almost 19 per cent, it is clear that the time is now to capitalise on the Manchester opportunity. In a UK market that is showing no signs of slowing down, investors have been shown a clear, unique and more lucrative alternative.  

About the author

Hamish Pound, Investment Manager, IP Global