Investors will often see, when reviewing potential property investments, a city described as ‘young’ or having a high number of graduates retained. ‘HESA destination of leavers survey’ is generally the go to guide on graduate leavers and where they go sitting the likes of Manchester, Leeds, Birmingham, Edinburgh and London at the top of the charts of cities holding on to graduates, with Birmingham traditionally losing many graduates to London expecting to see significant growth in the charts before the next release.
When looking at pure city age Slough, London, Oxford, Cambridge and Bradford are some of the names with Blackpool, Sunderland and Blackpool being some of the oldest.
While looking for a UK property investment why is this important? And what affect will it have on your long-term investment goals?
Primarily the goal, as always is growth in rental return and capital growth. For this we must go behind what the numbers mean. A true driver of property growth is how a city can retain its graduates.
Graduate retention tells an investor a few things about a city, that it has quality business’ there attracting the graduates to stay, that these graduates will eventually earn more and start to buy property increasing pressure on prices, and have promotions resulting in upward pressure on rentals.
The more a city grows with professional staff, earning more money and driving demand, the better our investments in that city will perform. Naturally it’s not the only consideration in growth but is one of the fundamentals of progressive long-term growth which we would like to see along with other growth factors considered.
Thankfully in the UK there are a significant number of cities performing and retaining increasing numbers of its graduates. Importantly this has been consistent, long term, and without reason to believe they will stop growing.
Retention of students is not the only factor to consider within a city. There is a significant ‘bounce rate’ of students who study in a different city and return to their home city, or study and move to another city for the job they are looking for. The number of students who ‘bounce’ accounts for around 50% of the students in any city.
Jobs are not the only factor attracting graduates. Cost of living balanced with opportunity has increasingly become an important factor for graduates and ultimately your buy to let investment.
As with many people London has increasingly become difficult in terms of the cost of living compared to the average wage overall, and even more complex for graduate roles. Birmingham and Manchester, and in some ways Leeds have equally had year on year rental and capital growth changing the landscape of property investments in the city.
At Baron & Cabot we have noticed an increasing lean towards sharing accommodation in Birmingham and Manchester. While most investors traditionally purchased 1 bed apartments in these cities, savvy landlords are taking advantage of the increasing costs and started to purchase many more 2 bed apartments as property investments in core city centre locations.
In purchasing 2-bedroom apartments as buy to let investments, focussing on 2 similar sized double bedrooms, 2 bathrooms and key locations, we are seeing investors targeting tenants who are increasingly sharing to afford the best locations in the respective cities.
This trend is expected to continue in a similar vain to London in terms of growth with pressure of demand still consistently outstripping supply in key financial cities. As a buy to let investor there is opportunity today to benefit from the price pressures in the same way we did 10 – 15 years ago in the capital.
The modern investor has to look at trends with their advisor and work with them. While a cliché the trend is your friend and understanding long term migration to a city of ‘high-quality’ professional tenants will always be a key part of the jigsaw.
Many factors come in to capital and rental growth, and while demographics are important they are a factor behind the numbers, giving comfort in the investment rather than being strong enough to choose the investment.
The balance between the loss of domiciled students against the gaining of graduates from elsewhere, 2013-14 to 2014-15:. Source: HESA destination of leavers survey.
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