Investors have long understood the importance of location. Birmingham is not just the geographical centre of the UK, but also its second-largest city after London. Day by day, it is becoming even more central to the nation’s economic future.
Why invest in Birmingham property?
A world city
In terms of their contribution to the advance of worldwide civilisation, three cities rank among the most important. Athens gave us democracy, philosophy, and architecture. Rome showed us how to develop and maintain the machinery of government. Birmingham was the centre of the Industrial Revolution (1750-1850), which was the basis for modern capitalism and the concept of economic growth.
Following their glory days, all three suffered severe decline. Athens and Rome eventually recovered to become tourist destinations. Only Birmingham can claim to have rediscovered its roots and is fast becoming a 21st century leader of European enterprise. The reasons are key to grasping its attraction for property investors.
Location, location, location
Those investors have long understood the importance of location. Birmingham is not just the geographical centre of the UK, but also its second-largest city after London. Day by day, it is becoming even more central to the nation’s economic future.
This is no accident of history or circumstance, but the direct result of local and national government plans to redevelop the city and, just as importantly, the entire region around Birmingham. The national plan is known as the Midlands Engine Strategy; the Big City Plan is the local initiative.
The Midlands Engine Strategy
While it includes government funding of about £650 million for local transport improvements and in support of small businesses, this is not a multi-billion-pound bricks-and-mortar scheme in the accepted sense.
Rather, this national plan, launched in 2017, knits together the many infrastructural, commercial, and residential schemes in progress or planned in the Midlands, ensuring their cohesion and connectivity. It also promotes the region actively, with exhibitions, road-shows, and presentations centred on trade fairs and other events around Europe, Asia, and North America.
The upshot is that Birmingham’s development will not produce a glittering oasis in the middle of an economic desert, but will knit the Midlands together in a regional, national, and international network of industries, facilities, and customers. The ‘second city’ is the hub.
The Big City Plan
Initially launched in 2008, the city council’s 20-year vision for the future was further expanded in 2010. It aims to create 50,000 new jobs and build 1.5 million square metres of new retail, leisure, and commercial floor-space, all in the centre. Around 5,000 new homes are also envisaged.
The plan is claimed to be the biggest-ever UK – and European – urban development scheme and is forecast to increase the local economy, valued at £28.1 billion at the end of 2017, by over £2 billion a year. Already, it has made considerable progress in regenerating not only the city centre, but also the districts around it.
Moreover, it dovetails with the Midlands Engine Strategy by including large-scale upgrades of the road, rail, and communications infrastructure, as well as fostering new residential, commercial, and office development.
Reshaping the infrastructure
Fundamental to the Big City Plan has been New Street Station, reopened in 2015 after a £600 million redevelopment. Not only is it a crucial node in the national rail network, it is that system’s current gateway to the Midlands.
The rebuilt station also connects with West Midlands Metro, an existing tram service covering Birmingham and its environs, notably, Wolverhampton, but other regional centres as well. Opened in 1999, it is being expanded from 26 to 35 destinations, most importantly including the airport.
With flights to some 100 international destinations, Birmingham Airport has the UK’s only direct service to China outside London. It also has direct services to New York. Over £500 million has been invested in an extended runway, modernised baggage facilities, improved road access, and better public transport services.
Drawing closer to London and the region
On a national scale, HS2, the UK’s new £56 billion, 250 mph, railway network, started construction in 2017. It is not just a response to a forecast doubling in rail travel between Birmingham and London by 2037.
Much more, it exemplifies the crucial purpose underlying both the Midlands Engine and the Big City Plan, which is the provision of a seamless and efficient business infrastructure linking the nation’s principal centres of economic growth.
Operation is planned to begin in 2026, from Euston in London to Curzon Street, a new city-centre station that Birmingham built for the purpose and expects to open the same year. Thereafter, the journey time between the two cities will shorten to less than 50 minutes, compared with the current 75 minutes.
Phase 2 of the scheme is set to open in 2032-33 and will link Birmingham to Manchester, Leeds, and Sheffield. After the first few years of operation, the two phases of HS2 will likely foster another 26,000 new jobs in Birmingham alone.
An added benefit will be yet further commercial and residential development of the central areas in Birmingham. Meanwhile, for the West Midlands as a whole, HS2 could, on its own, add an annual £4 billion to the economy.
A growing population
These are only the most visible projects that underpin Birmingham residential property. There are also significant changes afoot in the total population and its demographic mix.
Over the decade since the launch of the Big City Plan, the city’s population has grown by 12%, or 108,000. Even so, the current total of just under 1.1 million is expected to continue expanding over the next two decades. By 2039, a further 171,000 are expected, raising the total to nearly 1.3 million.
A working city, a young city
Most newcomers have been, and will continue to be, young families and singles migrating from other parts of the UK. They are drawn by the city’s booming jobs market, with 148,000 new offers in 2017 alone.
That trend will persist as new companies are launched and older organisations move staff to Birmingham to be closer to the Midland Engine. There were about 11,000 start-ups over the past five years, earning the city the accolade of best location for new businesses in each of those years.
Meanwhile, banking giant HSBC moved its national headquarters from London to a new Birmingham facility in November 2018, while HMRC, the national tax office, is moving 3,500 employees in 2020 to its new building in the equally-new Arena Central development. KPMG and PricewaterhouseCoopers, two of the Big Four accountancy firms, have also established substantial new premises in the city centre.
This persistent hunger for staff is a magnet for graduates, especially those seeking the technology and finance roles that are the focus of Birmingham’s development plans. In addition to four universities of its own, another 14 lie within an hour by from the city centre. Together, these institutions produce some 110,000 graduates annually, a substantial proportion of whom will stay to live and work in the city.
Such trends have created the youngest urban population in Europe, with 40% under 25 years old.
An affordable city
Nonetheless, it’s not just a growing number of home-hungry new arrivals that is driving the uptrend in Birmingham property valuations.
Just as important has been the compellingly attractive value on offer, especially for Londoners priced out of that market. Knight Frank Research estimates the average price of new-build developments at £400-500 per square foot in the centre of Birmingham. That compares with £1,000 – £2,000 per square foot in central London.
Meanwhile, in terms of the ratio of price to the average person’s earnings, the chart shows only Glasgow and Liverpool offer better value than Birmingham, and both are much further from London.
Little wonder, then, that more than 7,600 Londoners moved to the ‘second city’ in 2017. The trend seems unlikely to falter for some time, given the continuing affordability gap between the two centres and their diverging economic prospects.
Fun and games
From all of this, you might think the centre of Birmingham is a massive construction project, noisy, disruptive, and unsightly. With 24 schemes in progress, there’s no denying the high level of hammering and digging, but there is compensation in a wealth of distractions, day or night.
In malls such as the Bull Ring, the Cube, and the Mailbox, all in the city centre, there is an array of restaurants, bars, and shops for all tastes, whether seeking big brands or boutiques. It will surprise many that five of Birmingham’s best restaurants have been awarded a Michelin star apiece. Across the UK, only London holds more.
Music fans are also catered for, from the award-winning Symphony Hall with its classical repertoire, to arenas and theatres hosting new stars as well as revered legends in the world of pop, rock, country, and everything else.
Topping all will be the 2022 Commonwealth Games, to be hosted by Birmingham. These will make the city a focus of world attention, as well as providing lifelong memories for sports fans. More than 700,000 of them are expected to visit.
If you can’t stand noise and crowds, you can escape on foot or bicycle around the parks that cover a quarter of the city area. Even more quintessentially ‘Brum’ are more than 300 miles of 18th and 19th century canals that pass through the city and on to rest of the country. Hire one of the quaint but comfortable local narrow boats and just go. The photo shows one of them on the Grand Union Canal, which goes all the way to London.
Growth and yield
Given this confluence of so many positive trends, it’s hardly surprising that Birmingham’s property market has been strong for some time. Not only have home prices been rising, but rents also. This goes against the experience of the past, when, in percentage terms, yields tended to fall as prices rose.
A massive nationwide switch to renting, rather than owning, a home has been the primary cause, prompted by the rising non-affordability of prices, especially for the young. Despite this reduction in buying interest, a chronic shortage persists for both buyers and renters across the UK, especially in the fast-growing West Midlands.
The Birmingham Mail has reported that new-build completions must rise fivefold to accommodate the city’s forecast population growth. There is no sign the shortfall is about to end, or even lessen, anytime soon.
The current property market and outlook
The trend is a boon for investors, for whom around 20 developments – about 3,750 units – are under construction in and around the city centre. These new homes are of much better quality, and with greatly better facilities, than any multi-family complexes previously available in Birmingham. Driven by the demanding requirements of modern UK renters, they are raising the bar for city-centre living in the Midlands.
Demand for those attributes is, according to Jones Lang Lasalle and other property specialists, likely to push prices for better properties to nearly £500 per square foot by 2020, compared with the present average of less than £450.
For those accustomed to house and flat prices in London or other world capitals, even that higher value must seem modest indeed. All the more so when you consider that nearly all of these new Birmingham residences are within easy cycling, even walking distance of the centre.
Any mention of Brexit in the UK is either likely to clear the room or start a fight. That’s just as true in Birmingham.
However, the exceptional level of development, combined with a shortage of homes and the continuing exodus from London, gives the city has more than enough economic power of its own to be well-insulated from any economic upheaval that ensues.
Accordingly, while most specialists expect the rate of growth in prices and rents to slow a little, as it has done already in 2018, the pace will remain above-average.
If anything, the UK’s departure from the European Union could be helpful for Birmingham. Already more commercially linked to the rest of the world than most UK regional capitals, it is building steadily on that advantage as London bleeds its most enterprising and willing young people northwards to the second city.
It would be fitting if they are called there by the motto on Birmingham’s official coat of arms, which commands: ‘Forward’!