Is the northern powerhouse pulling investment from the South and driving it into the northern property auction market?
Despite the initial scepticism directed at George Osborne when he launched the idea of the northern powerhouse in 2014, the concept is fast becoming a reality.
Cities in the North are being increasingly seen by both domestic and overseas property buyers as a shrewd investment. These cities’ relatively low initial capital costs and strong returns are driven by demand from relocating or expanding owner-occupiers and by a healthy rental market.
So, while the government goes into its 15th year of deliberation about new runways or airports for the South, Manchester Airport has seen visits by the Chinese president and the creation of the “China cluster” forming part of one of the largest airport developments in Europe. We have seen expanded tram systems bringing greater access, new life and development across the region, and a football owner at Manchester City creating successful commercial and residential property developments that are changing the landscape. When we add this to HS2 and see entities like the BBC moving its headquarters into town, you know things are on the move.
These are all indicative of the general levels of investment in enterprise and infrastructure fuelling the growth of northern cities such as Manchester, Leeds and Newcastle.
This sits against a backdrop of the 2015 RICS survey on commercial property, in which 81% of respondents believed London commercial property was overpriced. CBRE’s report on capital investment over the past 10 years reveals that 60% of all UK commercial property investment transactions took place in regions outside London and the South.
But when it comes to property in the North, especially in the auction market, is the northern powerhouse actually making much difference?
Increased investment and growing demand for property is a perfect scenario for property auctions, where sellers benefit from exposing their properties to a competitive bidding situation that ensures the value is maximised.
In the UK auction market, the total value of commercial property sold has increased by 12.4% since 2013 to £1.1bn in 2015, although the average sales value of commercial property in London decreased from £815,000 in 2014 to £664,000 in 2015.
There has been a 3% increase in the total value of North West office lots offered at auction in 2015 to £23m. The average sale price of office lots at auction has also increased dramatically from £248,000 in 2014 to £353,000 in 2015.
This success in North West office sales is something we at Pugh & Co have seen in our own auction rooms. The average sales value of pure office lots in our auctions increased by 20% in 2015 on 2014 values, according to Essential Information Group.
It is not just the office market that has attracted increased interest at auction. Again, according to figures from EIG, Manchester’s combined commercial and residential property market achieved a 15.5% increase in total amount sold at auction last year.
Similarly, the commercial and residential auction market in Newcastle achieved a 14% increase in number of lots sold and a 9.6% increase in sales value.
The residential auction market in the North has actually seen the biggest increase in demand and sales values in 2015, as investors see the benefit of investing in a rising market (the average house price in Manchester is still £50,000 less than the UK’s average house price), together with the positive rental yields achievable in the North. Buy-to-let landlords in Manchester and the North East can expect a net annual income of 5% and 4% respectively, compared with a 2.7% net annual income for buy-to-let landlords in London, as detailed in the Property Partner Residential Market Index 2015.
With the government, businesses and foreign investment dedicated to making the North more accessible through improved travel initiatives, coupled with the average property price in London now being 12 times the regional average income, it is no surprise that investor appetite for residential and commercial properties at auction in the North is growing.
Clearly there continue to be investment opportunities to be had across the country, but investors are looking much more closely at the North, and the northern powerhouse is only just warming up its engines.
Paul Thompson is director and auctioneer at Pugh & Co
