Proper Wealth – EP 16: The Birmingham Property Market – Gavin Fraser (MD of High Street Residential)

Paul Mahoney: Welcome to Proper Wealth with me Paul Mahoney, the show where we discuss all things wealth creation, with a focus on property. Joining me today is Gavin Fraser, the managing director at High Street Residential, and we’re talking about the Birmingham property market. Hi Gavin.

Paul Mahoney: So Gavin, Birmingham is a buy to let hotspot. Perhaps we can just start with some general information on why Birmingham?

Gavin Fraser: Sure Paul. Birmingham is the second largest city in Britain. It’s a similar size to Manchester, but has a few extra whistles and bells in terms of buy to let investment. The city itself has seen the highest capital growth, and the highest rental growth in the UK, in recent medium term times, and of course what’s forecast to go forward in the future. It’s Britain’s largest economy, outside of London. It’s enjoying a jobs boom at the moment, and there is a supply demand gap over housing in the city center.

Paul Mahoney: Okay. Yeah. What I think is quite interesting about Birmingham is we’ve had an eye on it for quite some time, and now it’s sort of coming to fruition, isn’t it? I think it’s almost a general consensus that the midlands and the northwest of two areas that are doing really well, from a property perspective.

Gavin Fraser: We’ve seen sustained growth across the northwest for a number of years now. Birmingham started somewhat behind that, but it’s catching up very fast. So there’s a lot of infrastructure investment coming in Birmingham from the HS2 station that will connect it to London, to the Trump system that’s already in, and expanding on phase by phase basis.

Paul Mahoney: Okay, great. And what would you say are the main things that have changed recently in Birmingham?

Gavin Fraser: If you look back over the last 20 years in Birmingham, there’s been probably three phases of change in the city. The first phase was to clear out some poor quality housing that was present in the center of the city, and on the fringe city center. The second phase is to bring region, through various master plans, into the city center, new shopping centers, new housing estates, et cetera. And the third phase seems to be investing around infrastructure and clearing out some redundant use classes in the property market.

Gavin Fraser: In addition to that, of course we’ve had the boom in the generation rent sector, which has brought an awful lot of region into the city, and an a lot of vibrancy to the city as well. That sector is currently under supplied. It requires nigh on 5,000 units a year, of which we’ve peaked at delivering two and a half thousand last year.

Paul Mahoney: So Gavin, the last time we met, you showed me quite an interesting graph of central Birmingham, what’s going on around the area, some of the areas that are very much already gentrified, some of the key redevelopment areas, such as the Smithfield markets, which is very much now underway. And also areas like Digbeth, which are now sort of tipped as being, I suppose the next growth areas in Birmingham. Could you talk a bit more about that, and perhaps show us that graph that you showed me last time?

Gavin Fraser: Certainly Paul. It’s really important to understand how development is rolling forward within Birmingham. And it’s very important to understand what’s complete and what’s not complete, and where the master plans are for developing the city a little further.

Gavin Fraser: So if I just ask you to focus on this map a little while, and the map obviously cuts around the ring road around the city center. That is the inner ring road that is … And the city is also dissected by Bristol Street, which goes through the middle here and out the other side. If I can ask you to focus on this area here, because this is the core of the retail and the business city center. And what I can show you now is that, if you look at how regeneration has progressed in Birmingham you’ll see that there has been a large regenerations zone here called Park Central, which is complete, bar two or three blocks at the bottom.

Gavin Fraser: There is all of the regeneration that occurred around Broad Street, and the arena that runs along the west side of the city here, that is substantively complete, apart from the final parts of the Arena Central in the middle, and some individual sites, Arden Gate and our Holloway Head site here. But by and large, the regeneration on that side of the city is mature and substantially complete.

Gavin Fraser: The other area of the city that you might want to focus on is the jewelry quarter here, which is another suburb of the city center. Is broken tooth regeneration, and quite an artisan feel to it. But again, very mature and there are very few opportunities to supply more housing in that area. The city and its master plans then are focused on the eastern side and the southern side of the city going forward. And this is where we will see new communities appear.

Gavin Fraser: Okay? So if I can ask you to focus on the location of the new HS2 station here, coming in on the east side of the city, where regeneration wedged between the HS2 station and the city center is his underway, is partially complete, but in substantive build form for the bits that aren’t complete. There is the knowledge quarter, which is pretty much complete, sitting to the north side of the station. And then the rest of the regeneration really is focused on the south side of the station, around to an area of the city center called South Side.

Gavin Fraser: Okay? Now this is where we have two regions, one called the Southern Gateway, and the other called South Side, and they sit and compliment a central plank of regeneration in the city called the Smithfield market Regeneration. The Smithfield Market Regeneration will bring 1100 new homes and 3000 new jobs, and it will alter the center of the city. It’ll bring the city somewhat east, it’ll bring it east by 25%.

Gavin Fraser: What that means is that the leisure side of the city will sit on the east and south side, and that residential zones have been created called the Southern Gateway, and the South Side, to compliment that expansion of the leisure part of the city center. What you can see now, you can see waves of the city coming forward as we speak. So if you look at South Side, for example, the regeneration is complete to Brahms Grove Street, and the next block of the city down, which comprises of a number of sites, Kent Street Baths, the timber yard. Those areas now in onsite and progressing as built form.

Gavin Fraser: Smithfield, Market, of course, it was announced that Lendlease had won the joint venture with the city council to bring that billion pound investment forward, and site clearance has already started. The old Smithfield Markets have already markets have all been demolished, and the site is in a stage of preparation now for what will come in new build form after that.

Gavin Fraser: So I think that pretty much sums up how the city are expanding the city center, and in what direction it’s going. And it also sums up where the regeneration and the new supply opportunities exist, and in comparison to what parts of the city are substantively complete.

Paul Mahoney: Okay. That’s very interesting. Obviously companies like HSBC, Deutscher Bank, they seem to be moving thousands of jobs up to Birmingham at the moment. That must have been quite a big impact from a population growth perspective. And also, I suppose the right sort of people, living in those central locations, wanting desirable properties, nice and close to work?

Gavin Fraser: Yeah. Like I said earlier, there’s a perfect storm forming around Birmingham at the moment, forming around supply and demand. It’s driven by two things, it’s driven by the boom in the in betweeners, but it is also driven by the creation of new jobs in the city center.

Gavin Fraser: The connectivity and the infrastructure investment in Birmingham is bringing new jobs. I mean if you take HSBC, Barclays, Deutsche Bank, and Her Majesty’s Customs and Excise, then they’re bringing 8000 jobs between them over the next couple of years, that’s four businesses, and it’s frankly the tip of the iceberg.

Gavin Fraser: Most of those jobs are coming here because we will be soon connected to London, in very short timelines. And in all likelihood, the prosperity of Birmingham is going to be very closely coupled to the prosperity of London, as a result of that. With some head office, and a lot of back office jobs heading out into Birmingham that are highly paid jobs, that create sustainable income streams for families who need places to live.

Gavin Fraser: So at the moment we’ve got a requirement to build. We have a need to add 5,000 homes a year to the stock in Birmingham, and we’re supplying at two and a half thousand. Of course, there are 7,000 a year choosing to move from the south east and London into Birmingham. So we have a huge supply, demand imbalance, and it’s partly driven by the new economy that’s coming with those jobs.

Paul Mahoney: That seems to be a growing trend across all the major cities in the UK at the moment. The re-population of city locations, young professionals and the younger generation wanting bars, restaurants, cafes, their job, to really be on their doorstep.

Gavin Fraser: Yeah, there’s a there’s a few key statistics across most of the regional cities in the UK. And of course it’s been a statistic in London for some period of time. But youngsters are not getting mortgages now, until they’re in their thirties, some are not having their first child until live in the 30s. So they start off on the career ladder, get to a certain point on it and then depart to have families.

Gavin Fraser: What it does mean is that they are happier to live in city centers, they go on to have the same lifestyle that they had when they were a student, or a post grad. This is the in betweener generation, it’s generation rent. They don’t want to put their feet, plant their feet in the ground and get a mortgage and buy a house, until they’ve maybe you’ve got a child. And most of them will do without the car until they get to that point.

Gavin Fraser: So they prefer to live in city centers, which needs support around it. It needs all the leisure that comes with that, that needs cafes, bars, restaurants, and those facilities are certainly being built into the assets that are coming forward at the moment. And of course in Smithfield market, the 25% extension to the leisure city center in Birmingham, you will have all of that in abundance.

Paul Mahoney: Another big one is obviously infrastructure spending. So the high speed rail, there’s a bit of controversy about when it’s going to be done. But obviously Birmingham being the first major stop on that new bit of transport, that must be looking to have a big impact?

Gavin Fraser: Yeah. I mean if I can start by saying that Birmingham has fantastic infrastructure as it is, although some of it is recent investment. The tram system that links up all of the railway stations, and goes out to Wolverhampton, is expanding, and expanding in a number of phases. We’re, of course, investing along those tram stops, in terms of new blocks of flats coming forward.

Gavin Fraser: The train network, and the tram network soon, connect to the airport, which connects to 150 direct destinations worldwide, and pushes through 17 million passengers a year. You already have a real network that goes every 20 minutes into Euston station in London, but it takes an hour and a quarter to get there. When HS2 arrives, again, hopefully it will arrive sooner rather than later, it will bring that journey time down to 45 minutes. Now, 30 minutes doesn’t sound a lot, but for people traveling more than an hour, psychologically to work, it generally doesn’t work.

Gavin Fraser: So what we expect to find is, and we are finding, of course, is that a number of businesses are putting jobs out, but they’re also putting permanent office locations out to Birmingham because they can commute to them from Euston in 45 minutes, which, compared to some of the tube lines in London that probably puts them at zone five or six, I would imagine.

Paul Mahoney: Okay. Thanks very much Gavin. We’re going to have to go to a break now. But join us after the break, for more information on why Birmingham is a buy to let hotspot.

Paul Mahoney: Welcome back to Proper Wealth, with me, Paul Mahoney, on the show, we discuss all things wealth creation, with a focus on property. And joining me again is Gavin, from High Street Residential. We’re talking about Birmingham as a buy to let hotspot. So Gavin, when we look at property price growth in Birmingham, what’s that looked like in Birmingham over the past few years?

Gavin Fraser: It depends how long a view you take of it, of course. But if you go back 10 years the property in Birmingham was generally of an older stock. It would probably have traded for somewhere between 210 foot, to 250 quid a foot. Center of Birmingham now, ground floor, prime prices are north of £400 a foot, and you would see a similar transition in rental levels.

Gavin Fraser: So not so long ago, maybe seven, eight years ago, you would have seen 21 quid a foot for fringe city center stuff. Again, you’re up at £40 a foot per annum for good quality city center stock now. Going forward, of course, if you look at the data from Knight Frank, we expect to see capital value rises and rental rises sitting at four and a half to 5% per annum. Certainly for the medium term future.

Gavin Fraser: Crystal Ball gazing into the longterm future, again, they expect that to sustain, but obviously that date was a little more speculative.

Paul Mahoney: It certainly does seem to be one of the stronger growing cities, somewhat in line with other cities like Manchester and Liverpool, which have very much picked up over the past few years. Whilst places like London and the southeast, seem to be kind of plateauing or even falling, what do you think it is that’s driving that?

Gavin Fraser: Yeah, of course London deal in a whole different set of numbers to the rest of the country. And I’m not an expert, or I haven’t spent sufficient time to comment on that, so much, but what I do know is this, that Birmingham, whilst it’s come a long way in terms of capital and rent or growth, it’s still producing product that is affordable to the indigenous population, and certainly affordable to the new jobs that are populating the city center.

Gavin Fraser: So there’s some distance to go in Birmingham, of course, coupling Birmingham to London with a high speed railway line that of course will get us there so fast, will no doubt enhance all of those numbers again. It had a lower starting position than Manchester and Liverpool, in terms of its price point. So it’s come on a faster journey, certainly over a shorter period of time, but it’s still got some distance to go, when you compare it to the affordability, the price points of affordability that are coming out of the southeast and migrating into Birmingham moment.

Paul Mahoney: So places like Birmingham, and I suppose the Midlands and the north of England in general, have always been quite well known for the yields available on property. What is quite interesting is we’ve already spoken about the growth that’s starting to happen in those areas, but what are the yields like now in Birmingham? Are they still stacking up? Are they still around double that of London?

Gavin Fraser: Again, it depends what part of London you’re buying into, but what is quite common, is triple net yields of five to 6% in Manchester and Birmingham. But you also couple that, in Birmingham in particular, with sustained capital growth, and what’s propping that up, of course, is sustained rental yield growth, or rental level growth, I should say.

Paul Mahoney: Another interesting factor about Birmingham and these developing cities is the socioeconomic levels. Things like average wages, and I suppose the types of people living there, that’s certainly been changing. What’s your take on that Gavin? What’s driving that?

Gavin Fraser: Birmingham city center wages have gone up considerably in the last few years, but it’s because of the migration of new jobs, new type of jobs in the city center. We’ve gone from all industries to back office and head office functions for the financial services sector, for example, and many other businesses of that ilk. There are two major demographics in the city center. There are people who’ve come in to do those professional jobs, maybe they’ve come in from the suburbs of Birmingham, or they may have migrated from under the affordability crisis in the southeast.

Gavin Fraser: And then the other major sub sector is, of course, the students that are retained. So there are six large further education institutions in Birmingham, probably the largest in the country outside of London. There’s a 49% retention rate for the students, both foreign and indigenous students that go to those establishments. So again, those people are startling as professional people at the lower part of the ladder, and their wages grow, both in line with inflation, but also in line their career progression.

Paul Mahoney: I suppose another thing that I’ve certainly noticed when speaking with people from outside of Birmingham is potentially a bit of a stigma associated with the city. Probably not so much center of the city, but more so greater Birmingham. Do you think that’s changing?

Gavin Fraser: I think if you went back 30 years ago you would have been, probably mentally imbalanced to have wanted to have resided in the middle of Birmingham. There was a high degree of criminality, and there was a lot of poor quality housing, both social and private rental in the city center, at that time.

Gavin Fraser: The council showed strong leadership, and cleared a lot of that, rebuilt new, both affordable and private rental blocks. But also within their master planning, created the certainty for developers to come in and bring forward high quality buy to let rental product. What that meant is that you had a different type of person living in the city center, and of course with the high degree of surveillance that you now have, and the higher quality leisure bars, restaurants, et cetera, in the city center, it’s a place that people really desire to live now. Whereas 30 years ago it certainly wasn’t.

Paul Mahoney: Birmingham was also quite well known for being a university city. Obviously some good universities there, an area where people have pretty well always gone for university. Another thing, interesting, that’s happening there is postgraduate retention, people actually staying after they finish university. What’s your take on that Gavin? And what sort of impact is that having on the city?

Gavin Fraser: Yeah, well all the further education establishments in Birmingham are highly regarded, they produce, in the main, specialist students that go into industries that are located in the West Midlands. Of course, much light Manchester, and Edinburgh, and the other cities that have boomed in the last few years, Birmingham benefits from those students going on into their professions, but staying in the city center. Typically in a carless environment, and investing their income streams into the city center. So it has a profound effect. Of course it’s alongside the migration of skilled jobs into the city center from London.

Paul Mahoney: Okay. So we’re nearly out of time. We’ve spoken a lot about Birmingham, the key fundamentals of it, you know? What’s driving it from a property perspective. Also just the city in general, and why it’s a good place to be investing in property at the moment. Where would you say Birmingham’s going over the next five to 10 years, let’s say? What’s going to change, both the city in general, property prices, yields? If we were to come back in five or 10 years time from now, where do you think Birmingham will be?

Gavin Fraser: I think Birmingham will be in a very special place in a few years’ time. I think the regeneration that is happening is happening in waves, and happening fast. Big swathes of the city center will be new, build, high quality places to live, and it will be in an environment where there is ever increasing employment opportunities, and of course a high degree of connectivity London, and the businesses, and the wealth that exist in London.

Paul Mahoney: Thanks very much for that, Gavin. That’s all we’ve got time for now, and thank you very much for joining us on Proper Wealth with me, Paul Mahoney, the show where we discuss all things wealth creation, with a specific focus on property. Join us next time for more.

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