The UK’s secondary towns and cities are often referred to as our Cinderella locations, but many have lots to offer the savvy investor that can see past their size.
For example, we recently sold a landmark, modern and well-designed property comprising 129 flats, with the onsite mixed-use offering of office space, retail and leisure accommodation providing a desirable place for tenants to live. This property was located centrally in a secondary town with the following attributes:
- High rental growth prospects, with significant head room when compared to larger centres
- Low rental supply providing very limited competition for lettings
- Low capital value in relation to build costs, suppressing further direct competition in the near future
- Strong local and regional road and rail networks providing good transport links
- A good local economy with secured inward investment
- A less transient society resulting in a low turnover of tenants
The property in question was located in Barnsley, a Yorkshire town with a population of approximately 90,000. Place the same opportunity in Manchester, Leeds or another regional city and we would expect to be rushed off our feet with interest.
With investors lining up for such opportunities this demand is reflected in the price and subsequent return on investment (or yield). You can expect to pay a price reflecting a yield no more than 6% (gross) in Leeds or Manchester, for example.
This particular opportunity in Barnsley, however, sold for a gross yield in the region of 8-9%, a much higher return, for an investment with all the major attributes that would typically attract good interest. It was however located in a town mostly overlooked by investors – regional and those from London and the South East.
Over the past 2-3 years the northern residential investment market has seen a surge of London investors looking for higher returns from an investment. However, these investors are predominantly drawn to the large northern cities where demand is higher and potential returns are lower.
We recently marketed properties in Bradford and Halifax, offering returns of 9% and 11% respectively. Both are located centrally with good letting demand, let in the most part to local workers or those commuting to nearby cities. Both locations are seeing the effects of low capital values on new development, with little in the pipeline. And both have strong transport links.
Again, like in Barnsley, these towns / cities have good local economies and strong letting markets with the scope to grow rents over time. And again, we were able to achieve sales that offered gross yields much higher than if the same properties were located in Manchester or Leeds.
Ultimately, if you are looking for a good return on investment, surely a higher yield is preferable? Especially if the investment in question is located where letting demand is strong, the local economy is good and transport links are extensive.
Familiarity is key to investors and there’s comfort investing in the larger centres. But if you see an attractive opportunity, don’t be put off by a secondary town or city in the north…come speak to us – there may be more to it than meets the eye.