Infrastructure projects boost rents. We take a look at where road and rail projects are creating the next investment hotspots.
The reasons why an area becomes attractive to potential landlords (and tenants) remain much the same: good employment rates and high earnings growth, increased rental demand, an expanding local population, and good schools – particularly international schools. Government-led infrastructure projects – especially transportation – are transforming some areas into potential letting hotspots.
Investing in change
Last December, the Infrastructure and Projects Authority published full details of the government’s National Infrastructure and Construction Pipeline – a plethora of projects across the UK with a committed spend of £460bn (including £240bn over the next four years).
The Pipeline involves 158 priority projects, and a large proportion of these involve transportation:
- there are more than 240 transport projects and programmes, with a total value of £135bn (£78bn by 2021), including 13 priority rail projects (such as High Speed Two, or HS2), and
- there are 29 priority road projects, like the Mersey Gateway Bridge, the smart motorway schemes, upgrade work on the A14’s Cambridge Northern Bypass, and a £79m investment in a new A30 link road from the A391 near St Austell.
Investments like these can transform whole cities or specific neighbourhoods, and that has a positive knock-on effect for the rental market. “When people talk about convenience from a rental perspective, it’s all about transport and commuting distance,” says Ashley Osborne, head of UK residential at Colliers International. “Travel seems to be the number-one priority from every tenant’s perspective.”
The Crossrail effect
Crossrail has breathed new life into a number of areas previously unnoted by landlords along the 62-mile route from Reading to Shenfield in Essex. Data from Hamptons International suggests that house prices within a mile of any Crossrail station rose by 66 percent between 2009 and 2017 – 15 percent more than the average across London. Another report by developer Galliard Homes estimates that Crossrail will add more than £5.5bn to the total property value along its route.
Abbey Wood and Woolwich are two of the areas to benefit, along with Ilford and Brentwood (which includes Shenfield). According to Galliard, from 2014–15, the average monthly rent for a property in Brentwood rose from £1,122 to £1,409 – an increase of more than 20 percent. But Slough is the big winner as a result of the new rail line. There, the average rental yield of around 5.9 percent is predicted to increase, and the value of property is expected to rise by some 47 percent following the regeneration of Slough station.
Locations on the radar
Elsewhere in London and its suburbs, other sleeping beauties are being awoken by smart developers. Osborne at Colliers remembers Stratford and King’s Cross being classic examples of accessible areas with poor-quality rental stock until developers like Argent and Lendlease arrived.
Osborne says Croydon is on the same trajectory. “The new £1.4bn Westfield shopping centre should kick-start regeneration in Croydon, and that will help to sustain rental yield.” He also predicts future demand for rental stock in inner north-west London: in Willesden, Dollis Hill and Neasden. “They seem like obvious places for future development,” he says. “They’re well connected by the Jubilee Line, they go straight into the West End and across to Canary Wharf, and they connect to interesting retail centres like Wembley Central.”
Savills also highlights Woking and Henley-on-Thames for good schools and improved quality of life, and university cities like Bristol and Cambridge: “They’re worth considering because there are apartment developments aimed at young professionals going up, which is always a good sign.”
Top investment tips
Ultimately, every landlord has to make their own decision based on personal criteria. But insight is invaluable. So:
- Look at the track record of developers, and the phasing and timing of developments. “Check what is actually being delivered, and when, and be aware of what else is going on in an area,” Collier’s Osborne says.
“The risk is that there could be a stand-alone development, but not a great deal behind it. It could be good from a rental yield perspective, but, ultimately, it may not translate into a significant increase in capital value,” he adds.
- The movements of retailers are another useful indicator. “It’s very difficult to forecast demographics in order to predict tenant profile in an area. But retailers do a lot of work on that because they’re always looking at the demographics of their catchment area,” Osborne says.
- Look at who the main local employers are. “You need good employers in the area, but you don’t want all your eggs in one basket,” Richard Price, the NLA’s former head of operations, says.
“If it’s a big manufacturer, your whole rental market could disappear if the factory closes or moves to another area. Business start-ups can also be shaky because a lot of them fail in the first two years.”
- Stick to areas that you know well, rather than simply being led by how the rental yield looks on paper. “Always match your tenants to your property, and be aware of what your competition is. Look carefully at searches when you buy, and be prepared for changes that could occur in your area,” Price says.
- Think long term. Infrastructure projects take decades to come to fruition. “Property investment decisions must be made with a long-term view. It’s important to have a reasonable balance on rental return in the short term, and long-term capital appreciation,” Price says.
Why not try the NLA’s Planning a Successful Investment Course? This course is especially relevant to those landlords looking at options to change properties’ use, for converting and expanding a property or if you are interested in different types of housing to bring back into use or geographical locations.
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