Why international investors are looking at UK’s tier 2 cities for returns

30 November 2020 | Investment

The UK’s second tier cities are very often more appealing to international investors in terms of guranteed rental returns – as such cities don’t have the very high prices at play in London while also still having the capital’s high tenant demand.

According to RICS, in its September Residential Market Report, tenant demand in the lettings market rose for a fourth month running in the UK’s second tier cities, making them a potentially excellent choice for investors.

Here, we speak with Richard Peck, director of Manchester-based property firm Edgertonz, to delve into why tier 2 cities (not to be confused with the latest set of coronavirus restrictions, but those cities which are in the process of developing their property markets but haven’t yet reached their peak) are so appealing among overseas investors.

Why has your focus so far been on the North of England, and in particular more ‘unfashionable’ locations in ‘Tier 2’ cities?

Edgertonz was founded in Manchester over 17 years ago and we are passionate about bringing forward widespread regeneration across the North of England. We provide services your typical estate agent operating in our areas do not and have built a great network locally of investors, landlords and tenants.

The regional economies of the North West are forecasted to be among some of the strongest-performing in the UK across the next decade; there is immense potential for growth here. These areas are becoming increasingly attractive to a younger generation, drawn to the emerging regional employment hubs and benefits of high standards of living.

Tier 2 cities are going to be crucial in determining the success of the economic recovery of the country following the widespread impacts Covid has had on the UK’s economy.

Why do you think international investors are now investing so heavily in the North West?

There are plenty of reasons why the North West has become an attractive location for international investors. Although historically investors have focused their investments in the Greater London area, over the past decade we have seen a real increase in interest, particularly from buyers based in Hong Kong and South East Asia.

Property values in the North West are typically lower than the national average, meaning investors can acquire more units in order to maximise their returns. Looking to the future, the North West is also one of the fastest-growing regions in the UK with a sizeable population of over seven million.

Burgeoning demand for rental property in our region and at present limited supply creates favourable conditions and amongst the highest rental returns in the UK.

Where do you think the pandemic showed we could make improvements across the property industry?

I think the pandemic demonstrated some of the risks present in the market. It is a difficult time right now for investors who bought off-plan and are yet to see building work begin. In such a competitive industry margins can be small, and the financial consequences can be large.

For the property market to recover fully from the impacts of Covid-19, tier 2 cities, such as Manchester, will need to underpin the bounce back. 

After the wave of summer activity, we are already starting to see prices rise in these regions as demand spikes for semi-rural homes. When international travel resumes, I expect to see a surge in investment in these areas from overseas buyers, mainly in the buy to rent market, which has performed especially well during Q3.

What has enabled Edgertonz to separate itself from competitors?

We believe in providing a bespoke, personalised service configured to an investor’s needs. The typical real estate agency model is now outdated; the industry needs to be more flexible and dynamic to meet the ever-changing demands of today.

Edgertonz offers a wide range of specialist services from sales & lettings, market appraisals, financial, tax and investment advice, planning and property management. We do everything in-house instead of outsourcing and pride ourselves on not just our quality of service but also the breadth of services we provide. This means we cut out the middleman allowing for a more streamlined service.

Our team has a wealth of expertise and are on hand to cover everything from sales and acquisitions, to short-term and long-term lettings, property and block management. Within our investment arm, we provide fully completed, tenanted and managed investment properties for our investors across the UK and overseas. This puts our investors in an excellent position as these income-generating assets already have established track records.  

You mentioned income generating assets, could you tell me more about them and what untapped areas there are in the market?

Income-producing assets are investments, often in real estate or businesses that generate a recurring revenue. After acquisition, income-generated assets pay out income on typically a monthly or quarterly schedule, this is in contrast to speculative assets, such as stocks.

If you own an asset that pays out monthly, you could potentially make 12 new investments each year, meaning they provide a great deal of flexibility. Not to mention the assets appreciate in value over time, providing multiple avenues for revenue generation.

An untapped area for property investors is the agricultural sector. Although the term ‘recession proof’ is overused, agriculture is traditionally one of the most resilient areas of the economy. Rising populations and the need for the UK to ensure food security in case of future global crises means farms and farmlands are assets we expect to perform particularly well in the coming decades.

What projects do you have in the pipeline at the minute?

We have just acquired a completed, tenanted and managed residential project in Halifax, the Peak Residence. Halifax is the largest town of the Metropolitan Borough of Calderdale in the county of West Yorkshire.

The area is part of the government’s Northern Powerhouse plan for a super-connected, globally competitive northern economy with a flourishing private sector, a highly skilled population, and world-renowned civic and business leadership.

It is just 15 minutes away from Bradford, 40 minutes from Leeds and 50 minutes from Manchester.

This post has originally been featured in Property Investor Today.