London has long been at the centre of the UK property market, with high-end properties in the capital being the definite gold standard. Things are changing, however, and investors are now choosing more and more often to eschew the UK capital in favour of regional markets.
Interestingly, this trend is also being observed markedly among international investors. Traditionally, overseas buyers of investment properties have been keen on London but cautious about exposure to any other UK market.
This state of affairs has been changing for a while. The key attraction of London, particularly for international investors, is its perceived stability. It is – or at least it generally has been – considered one of the leading “safe” property investment markets. It does not, however, generate high rental yields. Though it does have a strong history of generating capital growth, this too is now in doubt as price growth is slowing some forecasters predict that the market is now overdue for a correction.
Over the past few years, the UK market as a whole has looked rather stable, so London’s key attraction has looked less of an advantage. Many regional markets, particularly cities, have left London in the dust when it comes to rental yields and experienced strong growth as well, all in places where the outlay of buying a property is far lower than in London. As such, it is perhaps no surprise that investors have been increasingly moving away from the once-dominant London market and dipping more into the regions, with even traditionally cautious overseas investors increasingly choosing the likes of Manchester, Edinburgh, Birmingham and Liverpool over London.
The trend has now been accelerated by something quite far removed from stability; the outcome of the EU referendum. With the UK voting to leave the EU, London is expected to bear the brunt of any resulting economic shock. Many regional markets, however, are less directly exposed to Brexit and have their forecasts propped up considerably by upcoming projects and events. The rafts of investment associated with the Northern Powerhouse initiative are brightening the forecasts of North of England cities like Liverpool and Manchester even through the uncertainties of Brexit, while the likes of Birmingham are set to reap the benefits of HS2.
While the referendum result has certainly resulted in an overall drop in international investment in UK property, a significant group of investors have nonetheless been drawn to descend on the UK by the fall in the value of the pound and the large, favourable exchange rate shift this represents for overseas buyers. With investment volumes starting to pick up again as of the final quarter of 2016, the trend of regional cities overtaking London as investment hotspots is continuing and many analysts have their eyes on cities in the regions to be star-performers rather than the capital.