Derby: A Guide to Property Investment

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DERBY A GUIDE TO PROPERTY INVESTMENT

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Property investment guide If you’re a regular visitor to the Residential Estates website, you’ll know that we’ve previously published a property investment guide to Derby’s nearest neighbour, Nottingham. Many of the regional strengths that make Nottingham a stand-out destination for investors apply equally to Derby, but this up-and-coming Derbyshire city has much to offer besides. Continuing economic growth, a multibillion-pound inward investment programme, and a history of strong rental demand are all helping to create an exceptionally attractive buy-to-let market.

Here, in this guide, we’ll examine some of the most important reasons why Derby merits the attentions of serious property investors, and we’ll look at what’s behind its potential for significant market growth.

DERBY FAST FACTS REGION East Midlands

POPULATION 257,000

DISTANCE TO LONDON 129.8 Miles, 2hr 38 minutes via car, 1hr 37 minutes via direct train link

DISTANCE TO NOTTINGHAM 14.9 Miles, 28 minute via car, 27 minutes via direct train link

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WHY INVEST IN DERBY? In recent years, Derby has established itself as a highly rewarding property investment destination whose appeal only gets stronger as time goes on. Since the dawn of the Industrial Revolution, it has always taken a lead in manufacturing technologies and, with strengths in sectors such as aerospace and automotive manufacturing, this is equally true today. But in recent years, it has also adopted other high-value, high-growth sectors that are helping to support one of the highest rates of average earnings in Britain. This sets a firm foundation for ongoing growth in rental demand and average property prices.

Importantly, Derby is also is part of a region that has wide-ranging plans for employment growth and urban regeneration – forces that will inevitably boost local rental demand still further.

In short, a range of key indicators suggest that Derby will remain one of the country’s best buy-tolet destinations, and not just for the short term but for decades to come. Some of those indicators include: •

Part of the East Midlands, one of the UK’s fastest growing regional economies

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Continuing population growth

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£4bn of inward investment secured in the last ten years

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£2.3bn of regeneration projects currently in the pipeline

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Multimillion-pound schemes to be funded by the Transforming Cities Fund

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Recognised by Centre for Cities as a top ten location for business start-up

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4,500 jobs created over the last three years

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Thousands of new jobs forecast over the next decade

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Nearly 12% of the city’s workforce employed in hi-tech sectors; 4 times the UK average

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The second highest average earnings in Britain

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Massive rental demand

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Affordable property prices

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Strong rental yields

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A UK top-30 university

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A university student population of circa 34,000

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40 million tourist visits per annum

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Set to benefit from HS2 rail links

We’ll take a more detailed look at some of these factors in the following sections.

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DERBY: AN OVERVIEW Located in Derbyshire in the East Midlands, Derby is part of a region that regularly appears in the top UK rankings for buy-to-let investment. Nearby are Nottingham (around 22km from centre to centre) and Birmingham (circa 55km), both of which are rewarding investment markets in their own rights.

The cities’ central locations have helped to make them popular amongst larger employers; particularly manufacturers and logistics companies that can make use of their convenient transport links. Derby certainly benefits from this, just as it has since the start of the Industrial Revolution. It has built steadily on its outstanding manufacturing pedigree, and now hosts such global names as Rolls Royce, Toyota and the train manufacturer Bombardier.

These and other major manufacturers support extensive local supply chains, as a result of which there are now around 22,000 people working in advanced manufacturing across Derbyshire. (See ‘Growth Sectors’ below.)

This is a significant number, given the modest size of the city itself. According to ONS (2019 data) the Derby local authority area has a population of 257,302, but that’s expected to grow to 281,800 by 2041. This figure is derived from baseline forecasts, but other organisations – notably HS2 – predict that job creation and population could rise by many thousands more as major investment programmes take effect.

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Economic Data The Covid-19 pandemic has made most economic data for 2020 look somewhat erratic and, like cities across the globe, Derby has seen activity decline temporarily in some sectors. However, it has a strong base and an ambitious recovery plan, so it’s likely to regain its momentum considerably sooner than many of its competitor cities.

Perhaps the best indicator of how it will perform when conditions return to normal can be found in Ernst & Young’s Regional Economic Forecast, which was published in February 2020, before the coronavirus lockdown took hold. It found that over the preceding 12 months, the East Midlands economy had grown at a faster rate than any other UK region. GVA rose by 1.6% and employment rose by 3.4%, which was more than double the average for the UK as a whole.

Looking forward, EY predicted that Derby’s economy would grow by 1.6% by 2023.

Data from a variety of other recent sources gives a snapshot of how the local economy has been faring:

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Population: 257,000

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Business population: 8,350

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Manufacturing accounts for the largest percentage of local employment

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Annual exports: circa £6.1bn (of which 90% were manufactured goods)

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Around 43,000 engineers live in Derby and the surrounding area

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The average weekly wage is £619, which compares to a national mean of £497

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Derby has a strong R&D sector; in the UK top 4 for patent applications

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Derby City Council has a City Centre Masterplan that seeks to leverage £3.5 billion in new

investment and create 4,000 new jobs by 2030

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POPULATION OF

257,000

£619

AVERAGE WEEKLY WAGE IN DERBY

8,350 BUSINESS POPULATION

£3.5BN 43,000

CITY CENTRE MASTERPLAN

ENGINEERS LIVE IN DERBY & SURROUNDING AREA

6.1bn ANNUAL EXPORTS

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Inward Investment in Derby According to Marketing Derby, the agency tasked with promoting the city to commercial investors, Derby has secured “£4 billion of investment in the last ten years, and £2.3bn of known projects (are currently) in the pipeline.”It also notes that “We have attracted £359 million of investment into Derby over the past three years… (and) attracted 4,500 new jobs.”

For a city of unremarkable size, these are some remarkable numbers. Generally, any such large sum, spread across a relatively small area, will tend to have a marked impact on jobs, living standards and, ultimately, local capital values.

Rising business confidence often has a ‘snowball’ effect, and as Marketing Derby’s data attests, this is already happening here. Growing confidence is also evidenced by a recent report that found that increasing numbers of employers were seeking new property in the city. According to a review published by Innes England in February 2020, Derby saw £281 million of new commercial property transactions over the course of 2019.

These are important details for property investors because a buoyant economy generally helps to sustain rising standards of living, and these, in turn, typically translate into more money in the pockets of potential tenants and buyers. Over the long term, property values have generally mirrored average disposable incomes, so a strong economy bodes well in terms of both rental demand and longer-term capital appreciation.

Some of Derby’s most notable investment programmes include: Derby City Council City Centre Masterplan 2030 Introducing its masterplan, Derby City Council writes: “Over the last decade, Derby has seen billions of pounds in investment, thousands of jobs created and huge regeneration successes, but we are not resting on our laurels.

“The City Centre Masterplan sets out a strategic context for investment opportunities in the city … (2015-2030), demonstrating the Council’s commitment to the regeneration of the city centre. By 2030, this masterplan aims to leverage £3.5 billion in investment (and to) create 4,000 new jobs.”

This is essentially the umbrella project for a host of urban renewal schemes in and around the centre. Examples include: 10

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DERBY SILK MILL

BECKETTWELL REGENERATION

A five-year, £17 million scheme to create the

Becketwell is part of Derby city centre and the

‘Museum of Making’ on the site of the world’s first

subject of a £200 million regeneration project. The

factory.

scheme will comprise a mix of office, retail, leisure and residential spaces, together with a hotel and a new public square. In all, the work is expected to create between 2,000 and 2,700 new FTE jobs.

The local council also expects that it will create “98 construction jobs per month … over the

DERBY MARKET HALL

duration of the 10-year development period.”.

An £11.4 million programme designed to convert a Victorian-era hall into a popular new retail centre; scheduled for completion in 2023.

THE NIGHTINGALE QUARTER Described as “one of the largest city centre regeneration sites in the UK”, this £150 million

GRADE A OFFICES, BOLD LANE A £6.9 million new build project that is creating a

regeneration scheme will see the site of a former hospital used to create new leisure, residential and exhibition space, together with improved public access, green spaces and cafes.

4-storey office block in the Sadler Gate area. It is expected to support around 200 new jobs when complete.

These schemes follow other important regeneration works, such as major improvements to the Cathedral Quarter – one of the city’s main shopping districts. Moreover, they are likely to be followed by further investment if the City Council’s latest funding bid is approved by the UK government.

In June 2020, the Council submitted a bid for £23.7 million of funding under the Future High Streets Fund initiative.

An article in The Business Desk, June 2020, noted that “the money will help bring new office space, create public areas, utilise digital technology to improve visitor experience, and provide a new use for one of the city’s most historic buildings… (It) would unlock a total investment of around £100 million – with the rest coming from the Council and private investors.”

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Transforming Cities Fund In June 2020, Derby City Council announced that, together with Nottingham, the city would jointly receive £161 million from the UK government’s Transforming Cities Fund. The money will be used “to launch an electric rapid-transit route through the city centre, create new park & ride hubs, improved cycling and public transport links, and electric vehicle charging points.”

The work is being overseen by the Derby Economic Recovery Task Force, which was established to manage the city’s economic growth as it emerges from the Covid-19 lockdown. It has already distributed over £40 million in business grant aid via Derby City Council and has numerous other projects in progress. Amongst others, these include a proposed “flood defence programme … that could free up land to create a new city centre park, build hundreds of homes and create commercial space for 1,000 jobs.”

The Task Force is also supporting the creation of a new business park extension that would cover 177 hectares and create up to 5,000 jobs. A key element of the South Derby Growth Zone, Infinity Park will provide a base for “high-value technology employment and skills”. The developer, Hallam Land Management, submitted its planning application July 2020. It forms part of a larger £100 million plan to create a string of garden villages across the region, and work is expected to continue for between 10 and 20 years.

The extended durations of these schemes are important because they will continue to inject money and jobs into the local economy for decades, rather than just a few years. This, in turn, should support greater economic stability, investor confidence and – as a result of rising employment – a gradual upwelling in demand for residential property.

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Full-Fibre Connectivity In April 2020, Derby City Council released data from a report by the economic consultancy company Regeneris. Its remit was to evaluate the likely economic impact of “near-universal full fibre connectivity… in the city over a 15-year period.” As the report shows, the planned roll-out of faster broadband across Derby could have significant and lasting effects.

£70M

£69M

IN INCREASED AVERAGE PROPERTY VALUES

£14M

RESULTING FROM “SMART CITY INITIATIVES INCLUDING HOME AUTOMATION TECHNOLOGIES, SMART ENERGY NETWORKS AND INTELLINGENT TRANSPORTATION SYSTEMS”

AS A RESULT OF DIGITAL ENHANCEMENTS IN HEALTHCARE DELIVERY

£39M

£21M

IN ADDED GVA RESULTING FROM INCREASED START UP GROWTH

IN IMPROVED PRODUCTIVITY AMONGST DERBY’S BUSINESS COMMUNITY

£213M

TOTAL IMPACT AMOUNT 15

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Business Growth Sectors in Derby Advanced manufacturing is a key sector for Derby. Around 22,000 jobs are supported by the aerospace, automotive and railway engineering industries, but these are by no means the only high value sectors in the city.

According to Derby City Council, other important sectors for GVA and employment include: •

Creative and digital industries (12,500 jobs)

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Quarrying (a £2 billion industry in the county)

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Textiles (85,000 jobs and 2,300 businesses)

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Tourism (worth £2.15 billion to the local economy; 28,000 jobs)

The Council notes that in terms of business population, the ‘professional, scientific and technical’ category is the single largest sector, accounting for over 17% of all enterprises in the area. The top 5 sectors include: •

Professional, scientific and technical: 17.2% (1,225 enterprises)

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Construction: 12.4% (905)

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Retail: 8.4% (615)

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Business administration: 7.6% (560)

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IT and communications: 7.1% (515)

Other important sectors include the arts, hospitality, logistics and, of course, manufacturing.

ONS reports that in terms of job numbers, the most important sectors include: •

Manufacturing: 20% of all jobs in Derby

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Health & social work: 16%

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Wholesale & retail: 12.5%

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Business administration: 8.5%

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Education: 8.5%

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Professional & scientific: 7.5%

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Hospitality: 7%

It’s important to note that many of these sectors can be considered comparatively ‘high value’ and well placed to sustain employment for decades to come. Moreover, the largest single category of job roles is ‘professional occupations’ which, according to the City Council, accounts for 20.1% of all employment locally. Next comes ‘associate professional & technical occupations’ at 14.3%. This weighting towards better-paid roles goes some way to explaining Derby’s comparatively high wages.

In short, the local economy is built on higher skills and relatively ‘future-proof’ roles. This is a characteristic that should support robust demand for higher quality rental accommodation for many years 16

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HIGH-SPEED 2 (HS2) Inward investment takes many forms and, besides commercial developments, publicly funded infrastructure projects can also have a transformative effect on a local economy. This is certainly true of plans for the HS2 rail network.

In order to take advantage of the faster connection times promised by HS2, a new station is to be built at Toton, between Derby and Nottingham. According to HS2 itself, “the future East Midlands HS2 Hub at Toton … will be one of the most connected places in the UK.” The company notes that “up to 14 high speed trains an hour will leave Toton” which is expected to feature rapid connections to Derby, Nottingham, Leicester and East Midlands Airport. These connections will include new railway and tram lines, and a new link road to the M1 motorway. From here, it should be possible to reach either Derby or Nottingham in just 10 minutes.

Other journey times: •

Birmingham Interchange: 17 minutes

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Birmingham Curzon Street: 20 minutes

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Leeds: 27 minutes

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York: 35 minutes

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London: 52 minutes

The East Midlands HS2 Growth Strategy has been formulated around the expectation of the new hub. It predicts that, regionally, HS2 could help to create 74,000 new jobs and add £4 billion per annum by 2043. (HS2 phase 2 is expected to be operational by 2033.) HS2 is expected to have a positive effect on many local industries including: •

Architecture & engineering

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Financial & insurance

• Hospitality •

IT & communications

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Legal & accounting

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Professional business services

A report commissioned by East Midlands Councils has evaluated the likely impact across the wider region and notes that “The baseline employment forecast for the study area suggest that employment will increase by 172,000 by 2042… of which 115,000 jobs are projected to be created in D2N2.” (D2N2 is the local economic partnership covering Derbyshire and Nottinghamshire.)

It goes on to state: “The three HS2-related scenarios would all result in higher levels of employment growth (between 205,000 and 263,000 additional jobs), indicating an uplift of between 33,000 and 91,000 compared to the baseline forecast.” In other words, the 74,000 new jobs predicted for Derby might actually only represent the lower end of a range of estimates for the city. Over the next 20 years, employment could potentially rise much more quickly.

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HS2 ROUTE MAP HS2 Line (Phase One) HS2 Line (Phase 2a) HS2 Line (Phase 2b) HS2 Services on existing network

Glasgow

Edinburgh

New Station (Phase One) New Station (Phase 2b)

Carstairs

Destinations served by HS2 services on existing network

Lockerbie

Newcastle

Carlisle

Durham Penrith

Darlington

Oxenholme Lancaster Preston Wigan

York

Leeds

Manchester Piccadilly

Warrington

Liverpool Runcorn Crewe

Sheffield Midland Manchester Airport

Chesterfield

Stafford Birmingham Curzon Street

East Midlands Hub

Birmingham Interchange

Old Oak Common

London Euston

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DERBY’S HOUSING MARKET Derby’s high-value industries, excellent rates of pay and continuing economic growth are helping to attract rising numbers of workers to the city. Rental demand is already very high, as it is in so many other British town and cities, but a continuing influx of new residents would be sure to put even more pressure on the sector.

Local planners are seeking to address this with the construction of new residential areas, such as the creation of a new garden village in the proposed South Derby Growth Zone. However, the 2,130 new properties will barely make a dent when set against the tens of thousands of new jobs that are forecast for the city over the coming years. And for so long as demand continues to outstrip supply, rental values and average property prices are always likely to rise.

The first half of 2020 was by no means a typical period for the housing market, so recent data needs to be regarded with some caution. Covid-19 and the threat of a no-deal Brexit have created two, ‘once in a generation’ challenges for the local economy. It is therefore important not to read too much into market data that has arisen during such a turbulent period. Nevertheless, even in the midst of all the upheaval, Derby has performed well.

According to Zoopla, average values in Derby rose by 3.68% between June and August 2020, which equates to an upturn of £7,333 in absolute cash terms. According to Rightmove, annual price growth was more modest but values in 2020 were still “8% up on the 2017 peak of £179,285.”

“Average house values in Derby rose by 3.68% between June and August 2020” - Zoopla

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BUY-TO-LET INVESTMENT IN DERBY It’s interesting to note that the average values quoted by Rightmove and Zoopla (£193,915 and £206,633 respectively) are well below the UK mean. For comparison, Rightmove’s August 2020 House Price Index puts the national average at £319,497.

This points to an important feature of the local buy-to-let market: despite all the economic activity now taking place, average prices are still very affordable. This is most likely because many of the most important social and economic impacts have yet to be felt. The investment projects that are planned or under construction are generating some new jobs, certainly, and they are putting more money into local supply chains, but their longer-term effects will be much more pronounced. Jobs and rental demand should grow steadily and continuously over the next 10 to 20 years at least, creating ideal conditions for buy-to-let investors.

In other words, Derby is an excellent market for longer term investments; the sort of destination that should deliver rewarding results, year after year. Job growth and a rising population should fuel dependable, steadily increasing rental demand, while rising disposable incomes should help to drive up average house prices.

In the more immediate term, Derby looks like a very safe bet for strong yields. Low prices and strong rental demand are always an attractive combination for investors, and as the economy gathers pace, gross returns should only improve.

In April 2020, the online lettings platform Howsy ranked Derby in the top 10 of UK destinations with “the largest change in rental yields.” In just the six months to April 2020, yields rose by 0.6%. More recently, LiveYield.co.uk published a table of yields on a postcode by postcode basis. In Derby, the best yields were to be found in DE24, where average gross returns were around 4.8%. Elsewhere, in and around the city centre, returns varied between 3.7% and 4.7%. These averages relate to all property types, of course, but a carefully selected property could deliver substantially more.

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Student Property in Derby The University of Derby is an important employer in the city and, with two campuses, it is responsible for attracting a considerable volume of local rental demand. In all, around 34,000 students attend the university, representing a sizeable proportion of the city population.

Generally, student rental demand is spread across the city but there are particular concentrations around the city centre and the campuses at Allestree and Buxton. This demand extends to a variety of property types, though more modern, self-contained student flats with good internet connectivity are particularly sought after.

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Derby Property Market Predictions for 2020 The coronavirus pandemic has forced many commentators to amend or suspend their predictions for how the market might change in 2020 and 2021. Consequently, few if any have made confident forecasts for Derby – or, indeed, any other individual city besides London.

However, at a regional level, organisations such as Savills have been prepared to offer their views. In June, the company suggested that all regions would see a sharp drop in values over the course of 2020, but that most would then make a swift recovery. Savills expected the East Midlands to sit comfortably in the top 5 fastestrecovering regions, with properties gaining an average of 7% in value during the course of 2021, and a total of 18.4% by 2024.

Again, these are only broad regional averages, so it’s important not to read too much into them. Returns will vary from city to city, from street to street and from property to property. But with a strong economy and high concentrations of employment in high-value sectors, Derby is better placed than most to recover quickly from the Covid-19 lockdown. A well-chosen property here could deliver capital gains and gross yields that are far in excess of regional norms.

Market predictions are difficult at the best of times and, faced with the uncertainties brought about by the pandemic, the task is especially difficult. But the dust will settle eventually, of course, and in the meantime, Derby will continue to show all the characteristics of an outstanding investment destination. Covid-19 can do nothing to alter the stark imbalance between supply and demand for rented accommodation, property prices will remain affordable, and a wealth of important urban regeneration projects are sure to invigorate the local economy.

For all these reasons and more, Derby has become a property investment destination that is well worth watching.

FOR MORE INFORMATION For more in depth information regarding property investing in Derby, please contact our offices on 01244 34 33 55, visit our website at www.residential-estates.co.uk or email sales@residential-estates.co.uk or come and visit us at our brand new address. We look forward to hearing from you.

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