HS2, the UK’s high-speed rail network becomes a reality and creates opportunity.
In 2014, a United Nations study revealed a significant moment in human history: more people living in urban areas than in rural ones. The expectation is that by 2030, 60% of the world’s population will live in cities.
The UK is ahead of the curve in this regard. “In Britain, the urban population is 83% and counting,” says Nick Whitten, director, research, at JLL, one of the world’s biggest property companies. “So there is an acute need for housing in urban areas.”
The situation presents significant opportunities for investors. The trick is to identify which cities are likely to see the greatest economic – and therefore population – growth, and then understand how likely it is that housing numbers will keep pace with demand. If supply is unlikely to keep up, basic economics dictates that prices will rise. So how can investors in the UK anticipate and capitalise on increasing urbanisation?
Residential property value near Crossrail stations has increased 36-60%. Now the smart money is turning to the HS2 route in Birmingham, Leeds and Manchester
A report from think tank Centre for Cities published in July this year listed a number of factors common to growing economies, of which one of the most important was “excellent transport connections, including good links within the city and to other places in the UK and internationally”.
In London and the South East, the increase in value of residential property close to Crossrail stations, since that project was confirmed in 2007, ranges from 36-60%. Further increases are likely – values tend to get another boost once operations actually begin – but already smart money is turning to the High Speed Two rail link (HS2), especially now that the route from Birmingham to both Manchester and Leeds has been confirmed.
Hermes Real Estate has invested in sites in Birmingham, Manchester and Leeds – not to mention London’s King’s Cross – and chief executive Chris Taylor says the golden thread linking its major acquisitions is transport. “We wouldn’t have bought these sites if we didn’t have the confidence that the infrastructure was going to be materially improved,” he says.
Birmingham will benefit from the so-called ‘HS2-effect’. The city should start to receive services in 2026 and has already seen a series of major corporates taking the opportunity to shift large parts of their business out of central London. Perhaps most significantly, in March 2015 HSBC announced that it would move around 1,000 jobs from London to Birmingham.
The arrival of HS2 has already got commercial developers excited, but the impact extends beyond commercial property. Experts agree that Birmingham needs to deliver an average of about 4,500 new homes a year to accommodate economic growth, but the city currently delivers fewer than half that figure.
As a result, residential investors have already started ploughing into Digbeth, the area immediately in the vicinity of the anticipated HS2 station in Curzon Street. “There has been a wave of interest from developers in the area around the planned Curzon Street HS2 station,” says Mark Evans, head of regional residential development at Knight Frank. “The station is part of a much wider regeneration of this area and we can see this reflected in land prices.”
Areas beyond those immediately surrounding the new station also stand to benefit. The influx of white-collar workers earning comfortable wages is likely to fuel the residential property markets in Birmingham’s more affluent suburbs. Jon Neale, JLL’s head of research in the UK, describes “leafy southern suburbs such as Edgbaston, Moseley and Harborne” as likely beneficiaries, while a Savills report also references Solihull.
A similar story is to be found in Leeds and Manchester – something that both cities’ councils are keen to exploit. In Leeds, the council has designated the area around its main train station – which should start to receive HS2 services in 2033 – as an area to accommodate around 4,000 new homes. In Manchester, meanwhile, the council has designated six zones adjacent to its nascent HS2 station, three of which are expected to deliver significant volumes of residential property.
Both cities provide opportunities for residential investors. Leeds’ strong economy is projected to need just shy of 5,000 new homes a year for the foreseeable future, but the city currently struggles to deliver 2,000. The equivalent figures for Manchester are even more compelling: a requirement for nearly 10,000 homes against completion of half that number.
Then there are areas likely to be overlooked by major investors which nevertheless could provide high returns on investment. For instance, within days of last month’s announcement that Toton could be the location of the HS2 East Midlands Hub interchange, developer Peveril lodged plans with the local authority for up to 500 homes on a site just up the road from the proposed station.
There is also the question of what is likely to happen in London. Any upgrade to Euston, the captial’s HS2 terminus, is likely to give the local area a shot in the arm. Significantly, HS2 will provide an interchange with Crossrail, and its fast links to Heathrow, at Old Oak Common in northwest London.
Currently a collection of railway sheds and a Car Giant, the site has the potential not just for major residential development but also to give a major boost to surrounding areas such as Acton and Willesden.
Given the timescales involved, major property agents are unwilling to forecast movements in markets off the back of HS2. But they are agreed that historical data and wider economic and demographic forecasting point in one direction: growth.
Adam Branson writes about the UK and international property market, and is the Associate Editor of Property Week.