Supply and demand dynamics provides opportunity for investors.

28th October 2019

Traditionally London has been regarded the epicentre of property investment in the UK, even in spite of occasional year on year price deflation as we have seen in the last 2 years (1), it still remains a popular choice with investors, but low yields and a new social economic dynamic means this is now starting to change.    

The capital no longer holds the same appeal for younger people today who have different ambitions to those held by previous generations who were lured by the bright lights of London.  Generations Y and now Z are increasingly looking towards Manchester, regarded by many as Britain’s second city, as a more affordable and attractive place to put down roots, drawn by its vibrancy and its wide-ranging leisure facilities, culture and most importantly its job market.      Advances in technology make these choices possible now that were not available maybe even 5 years ago.  The commercial application and use of the cloud by pretty much everyone now means that they don’t have to go to London alone to find fame and fortune, and big business has come to the same conclusion.

This migration is not new, but Manchester faces new challenges as the pace continues to hasten, with the population of the city increasing by 26% between 2002 and 2017, and by 51% for those aged 21-30.  In 2017 it saw the largest net migration from London in five years.  (2)  However, with higher demand comes higher prices and the pressure is now on stakeholders to deliver the number of homes required to keep pace with the growth of infrastructure and employment. 

Many of the companies attracted to the city are in the IT and professional services sector who anticipate that many of the forecasted 11,000 new jobs they are creating by 2022 will be filled by graduates and young people.  It is no coincidence either that Manchester’s appeal for these younger generations is the technology hub the city has become.   By definition, Gen Z are a group who have grown up with the internet, know only a digital world and feel most comfortable in an environment that embraces technology and social media.    

Manchester has become the FinTech capital of the north (3) with some 80,000 tech professionals living in the city supported by a university culture that tops up that talent pool on demand, and a graduate retention rate of 51%, second only to London. (12) At the same time however housing supply is not keeping pace with influx of new residents with only 4000 purpose built residential units due to complete in the next 2 years.  This imbalance creates opportunity for investors at a time when home ownership for these younger Mancunians is still largely unattainable, and who are likely to continue renting for the foreseeable future. (5) (7) 

The conundrum for Manchester typifies the government’s sometimes misunderstood focus to tackle what they have called our broken housing market.  Location, supply, demand and affordability are the components of a formula that needs to be correctly managed in order to address such a crisis or prevent it happening in the first place.  Put simply, we need to have the right number of homes in the places where people want to live, where employment exists, and ones they can afford to live in.  Currently that imbalance exists all over the UK, where often the challenge is to attract companies, employment, and people where the housing stock already exists, and in fact where growing numbers of empty properties are appearing. (6)  Imbalanced dynamics as in any market, where demand is greater than supply fuel house price inflation and higher yields, which is what the government is trying to address.

Speed of supply, not the supply itself is the missing ingredient for Manchester, but there is certainly the appetite to address that from the Mayor, the city council and developers, along with a long list of further infrastructure projects in the pipeline.  (8)  In the meantime, Gen Z demand is sky high for modern low maintenance flats in the city centre being most sought after and in the short and medium term the supply and demand imbalance will get worse before it gets better. (9) 

This inevitably means there will be some accelerated house price inflation in Manchester over the coming years, JLL forecasting over 28% in the next 5 years.   Indeed, Deloitte argue that when investing, Manchester “should be judged by different criteria from other UK regional cities. Manchester is now in a different league, genuinely competing with other European and international cities” (10).     Investors would be well advised to take advantage of this scenario and consider an off-plan purchase for many reasons.    Prices are lower than units that have already been built with further discounts available for multiple unit purchases, and often the best units are available in phase one.   It is the investor not the developer that benefits from any house price inflation that takes place during construction, so the earlier the purchase the greater this stands to be.

NPP investments are one of the country’s leading sourcing companies of UK investment property and offers a range of high specification apartments in Manchester City Centre that attract estimated yields of 6%.   NPP offer a cradle to grave fully managed investment service for landlords which includes a letting division, so whether buying an off plan or completed unit, they manage the purchase through to completion, find a tenant and then manage the tenancy thereafter, making it hassle free for a landlord based overseas or elsewhere in the UK.

  1. https://www.hometrack.com/media/574562/hometrack-uk-cities-house-price-index-aug2019-65-cities.pdf
  2. https://www.manchestereveningnews.co.uk/news/greater-manchester-news/millennial-manchester-young-people-snubbing-15666017
  3. https://www.investinmanchester.com/sectors/financial-professional-and-business-services/fintech
  4. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/590464/Fixing_our_broken_housing_market_-_print_ready_version.pdf
  5. https://www.urban.org/sites/default/files/publication/98729/millennial_homeownership_0.pdf
  6. https://www.bbc.co.uk/news/uk-wales-49638043
  7. https://content.knightfrank.com/research/707/documents/en/the-uk-tenant-survey-2019-6118.pdf
  8. https://www.bbc.co.uk/news/uk-england-manchester-46776473
  9. https://www.buyassociation.co.uk/2019/08/30/manchester-property-still-in-demand-with-117-spike-in-incoming-residents/
  10. https://cdn2.hubspot.net/hubfs/1717782/2019/BA-2019-Overview.pdf

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