Concrete Analysis

Manchester’s growing ties with China bring city to a new generation of potential investors

As finding value in the traditional trophy markets of central London, New York and Sydney gets harder, ‘Northern Powerhouse’ city is a hotspot apart

PUBLISHED : Tuesday, 16 February, 2016, 8:00pm
UPDATED : Tuesday, 16 February, 2016, 8:00pm

China’s growing ties with Britain’s second city were put under the spotlight last October during President Xi Jinping’s historic visit to Manchester. From an £800 million stake in Airport City Manchester to Manchester City Football Club’s recent £265 million deal with a Chinese investment group, the tide of investor interest is rising.

Increased links with China are also bringing the city to the attention of a new generation of potential buyers. Direct flights from Hong Kong have run for some time, from June 2016 Hainan Airways will begin a direct service from Beijing, and there are rumours that a Shanghai service will be announced soon.

For Asian-based property investors, this combination of value and potential for capital growth and healthy yields sets Manchester apart as a key hotspot for 2016 and beyond.

Manchester’s attraction is clear. Its economic performance, growing population and position at the centre of the Chancellor of the Exchequer George Osborne’s “Northern Powerhouse” are all key structural factors driving this, but most important of all is the value investors can find in the city.

It is becoming ever more challenging to find similar value in the traditional trophy investment markets of prime central London, New York and Sydney. Less obvious destinations, however, such as outer London and regional cities like Manchester, are undervalued with significant potential for uplift.

For Asian-based property investors, this combination of value and potential for capital growth and healthy yields sets Manchester apart as a key hotspot for 2016 and beyond.

Property prices in Greater Manchester remain 13.6 per cent below their pre-recession peak, and conservative forecasts put price growth to 2019 at 20 per cent. Meanwhile the city’s thriving lettings market has been recognised by HSBC as one of the country’s top 10 buy-to-let hotspots, with average rental yields of just over 6 per cent.

The main fabric of Manchester’s investment case is its booming economy and growing young workforce. Greater Manchester’s gross value added, a measure of the goods and services produced in an area, is now higher than that of the Northeast, West Yorkshire or Merseyside, and is forecast to grow 32 per cent to £75 billion by 2024.

Manchester is also successfully retaining its intellectual capital, with a significant proportion of the 100,000 students studying at the city’s four universities choosing to settle permanently after graduation. Over the next decade Manchester’s population is expected to increase by 128,000.

More than 110,000 new jobs will be created by 2024 across a range of industries. Manchester has the largest professional and financial services sector outside London, employing 324,000 people. It is also Britain’s largest hub for the creative and cultural industries, with 62,000 employees.

It is even growing as a science hub, as Xi saw when he visited the National Graphene Institute, and announced a new partnership between Huawei and the University of Manchester to develop the next generation of high-performance information and communications technology.

As the “Northern Powerhouse”, Manchester will be an economic counterpoint to London in the South. The proposed scheme will see £7 billion invested in science, transport and infrastructure over the next five years, to nurture economic connectivity across a group of Britain’s great northern cities – Manchester, Liverpool, Leeds, Newcastle and Sheffield.

At the core of Manchester’s burgeoning status as a property investment hotspot is the steady growth potential gathering pace as the city struggles to supply enough housing to meet soaring demand. The city averaged 4,500 net housing completions per annum between 2010 and 2015, less than half the 9,654 new units required annually to meet demand.

From a global context, 2016 has not been without its shock waves. From falling oil prices to volatility across China’s share markets, investors are more than ever looking for ways to protect and grow their wealth in stable asset classes and in safe-haven markets. As one of the world’s most established safe haven markets, it’s no surprise that for Britain, undervalued Manchester is in the spotlight.

Hamish Pound is investment manager at IP Global