Birmingham Property Investment: Special Report
Birmingham is quite an attractive residential property investment location – it is the UK’s second biggest conurbation after London and has two large Universities, Birmingham University to the west and and Aston University in the city centre. Regeneration has been gradual over the last decade as Birmingham has recovered from the steep decline in manufacturing in the 1980s. Prices have already risen quite strongly in most districts.
The population of the conurbation of Birmingham is some 3,000,000 although Birmingham itself is just over 1,000,000. Birmingham is famous for its engineering (cars, machining, light engineering), manufacturing and distribution. The services sector has increased substantially in the last decade and there is a positive feel about the area and generally good future economic prospects. One of its main strengths is its central location and huge population within a 2 hour drive. Rail and motorway networks are extensive and the new M6 toll road has helped alleviate traffic congestion on the motorways in the West Midlands. The city is an attractive investment area because of the following:
The biggest and most prestigious university in the area is Birmingham University in Edgebaston. Aston University in central Birmingham is another large and successful university with a fine reputation in IT, science and engineering. These two student markets can be tapped by purchasing large Victorian terrace houses in the student neighbourhoods around Edgebaston and Aston.
Focal Point for the Area
Beyond doubt, Birmingham is the biggest and most important town in the Midlands and is arguably the UK’s top manufacturing and distribution centre. Retailing up until recently in Birmingham was a bit of a disaster, but the recent Bullring regeneration has largely changed this and much new investment and employment has been generated by developments in the Bullring area. Another important area that has been regenerated is the Jewellery Quarter about 1 mile NW of Birmingham city centre. Here, many old warehouses have been transformed into trendy loft apartments, and cafés and restaurants have sprung up to cater for the new urban professional population and tourists that come mainly to window shop at the Jewellery shops in the area. This district has a very good feel about it, and is likely to become more popular, as urban city centre living for both professional working people and retired empty nesters (pied-a-terre) gains in popularity.
Attractive Rental Yields
The rental market is strong with rents quite reasonable – because property is still quite cheap (say 80,000-100,000 pounds for a 4 bedroom house in most areas) yields are attractive. To reduce void periods to a minimum, I would recommend purchase of property close to the city centre and University (within a 10 minute walk).
Birmingham Airport is relatively small compared to the size of the area's population. Low cost flights are available to many UK destinations and to some European destinations. The airport is expanding and services should improve. East Midlands airport near Leicester is about 40 miles away to the east and has a further selection of flights. Coventry airport is small but has plans to expand and is some 15 miles south-east.
Birmingham has many good motorways with the M6 north (Manchester/Liverpool), M1 and M40 south-east (London) and the M5 south-west (Bristol). The city centre is just off the M6 and access to the network is good.
Birmingham - central
One of the challenges about Birmingham is that because there are so many suburbs and districts it can be confusing to try and find the ideal investment location. My advice is focus on the key communications and infra-structure.
For instance, being close the Universities, city centre, Jewellery Quarter, Bullring and New Street station are an advantage. Try and find the lowest priced property in the most central/convenient areas. These areas generally correspond to the areas showing most re-generation.
You will find a number of new canalside apartments in centre Birmingham – rather than purchasing these, I would favour buying used flats and houses close by that can benefit from the general regeneration. You should attract tenants by offering rather lower rents, but demand should be high being so central and convenient to offices, universities, hospitals, road and stations. Bottom line is, most people cannot be bothered with travel and want convenience and amenities, so get as central as possible for as low a price as possible in a regenerating area.
New wharfside apartments cost about 220,000 pounds for 2 bedroom – and up to 330,000 pounds for top end property – note these prices are not far off London prices, so be careful – you can buy three terrace houses in Handsworth for this money (I think they are overpriced).
A higher risk but higher upside opportunity is Handsworth, just north of the Jewellery Quarter. This suburb had riots some years ago and has high crime, but things are improving and it is likely professionals will start moving in, in larger numbers shortly as the Birmingham economy improves. As long as crime does not rise, and you believe your tenants would be happy to live there, this could be a good long-term albeit higher risk bet. Prices for small 2-3 bedroom terraces are as little as 65,000 pounds. However, prices have doubled in two years – that said, areas very close to the Jewellery Quarter could see further substantial rises because the area is so central to the main city.
If you are looking for established regenerating areas which are already popular with professionals, then the Jewellery Quarter could be a good place to invest, either in used or off-plan developments. Prices are already high, so there are risks if prices fall. Tenant demand is good, though with the increasing amount of new developments, the medium to high-end market could become saturated driving rents down further. Lofts cost about 200,000 pounds - this is not cheap.
University areas of Edgebaston (B17) and Aston
If you wish to capture the student markets, there are two mainstream options. One is to purchase flats or houses close to Aston University that could also be rented to city professionals since it is very central. The other option is to buy say a large Victorian terrace house in the leafy suburbs of Edgebaston. Prices for such houses have gone up a lot recently and cost 160,000 to say 250,000 pounds, but as long as the area becomes more attractive for people in the long run, this could continue.
If I was to do this, I would have my eye on buying a very large house, having students live there for say ten years, then knocking the house into say 4 luxury apartments for retiring empty nesters. I’m not convinced this is the best investment one can make, but I don’t think you will go far wrong as long as your economics are good and the student tenant demand stays okay. Note that prices have risen by 6% in Edgebaston in the first 5 months of 2004.
West Bromwich (B70)
Further out, there is considerable upside in prices in places like West Bromwich. This town has the new direct tram line to Birmingham city centre for commuters. A nice 1 or 2 double bedroomed flat or 2 or 3 bedroom terrace house within 5 minutes walk of the tram stop is worth looking at. Prices of flats range from as little as 55,000 to say 100,000 pounds (average 79,000) and small 2 bedroomed terraces for around 90,000 pounds, close to half the price of central Birmingham. Handsworth golf course is close by and communications in all directions on the motorways is excellent.
Further out, there is also considerable upside in prices in Wolverhampton. This is the end of the new direct tram line to Birmingham city centre, though the train is actually faster. A nice 1 or 2 double bedroomed flat or 2 or 3 bedroom terrace house within 5 minutes walk of the tram stop in Wolverhampton is worth looking at. Prices of flats range from as little as 35,000 to say 90,000 pounds (average 58,000) and small 2 bedroomed terraces for around 80,000 pounds in Wolverhampton, about half the price of central Birmingham.
Another option worth considering is Dudley to the north-west edge of the conurbation, in the heart of the England Midland “Black Country”. Regeneration started in the early 1990s and many new arts/museum complexes have opened making the town vibrant once more. Prices have doubled in the last two years and now average 82,000 pounds, but there is a chance these increases could continue if Dudley becomes a popular arts and cultural focal point for the area. Price rose 7% in the last few months up until May 2004, so clearly this area is still rising fast. The town’s rail links are not as good as other towns, but there are many nice parks and schools are good.
Birmingham apparently has more mileage of canals than Venice – these used to be in disrepair and polluted, more of a liability than an asset - but many have now been transformed in the last 20 years. People seem to love living next to water, and Birmingham is no exception. If you can buy any property in an up and coming area which fronts onto a canal, you might do particularly well. You could begin by doing a search of roads on canals and looking on the internet for properties in those postcoded areas – such properties are likely to get increasingly popular in the future as the baby-boomer retire and aspire to live with either a view or access to a waterway.
Unemployment in Birmingham has already come down dramatically from the highs in the 1980s after the decline in manufacturing and is now 5.3% – I would envisage unemployment to come down still further, particularly in the poorer suburbs though it has increased a bit mid 2004 (manufacturing doldrums). Improved employment should support rental demand and house prices. A slow but sustained recovery in manufacturing and general growth in distribution and services bode fairly well for employment prospects in Birmingham and surrounding areas.
(Refer to house price charts). I would envisage a ripple effect from more expensive foci such as Edgebaston, the Jewellery Quarter and B1, and Dudley town centre to more peripheral areas with good communications such as central Wolverhampton and Handsworth. It seems the better areas are rising fast in 2004 such as central Dudley, Edgebaston, West Bromwich and centre Birmingham – the question is, will the rest follow suite if a general housing shortage of supply kicks in?
If only we knew about Edgebaston and Dudley three years ago! I’m not so sure which area is likely to go up more in the future, a nice neighbourhood or an up and coming neighbourhood or one currently in the dumps. To reduce risk to a minimum, if you buy in an improving area, central, close to amenities, colleges, motorways, canalside “café culture” and jobs, you wont go far wrong, as long as you pay as little as possible. A canalside Victorian terrace in southern Handsworth with overgrown garden that could be transformed would be ideal – but it will be tough finding it.