Our Guide To Property Investment in Bristol
The South West of England has been one of the UK’s most consistently rewarding property investment locations for some years now. In 2020 and 2021, it became a popular destination for those moving out of cities in favour of homes that afforded better access to open space. Coastal towns and rural communities saw a sharp upturn in demand for both residential and tourist accommodation, and average values rose accordingly.
In the early months of 2022, ‘the race for space’ may have slowed, and cities may be regaining some of their former popularity, but the South West continues to fare very well, even by the standards of a still-buoyant UK property market.
On the 4th March, for example, Zoopla published its latest House Price Index, which listed the South West second overall in its UK regional rankings for capital gains. Achieving year-on-year growth of 9.7%, it was beaten only by Wales, which delivered returns of 11.7%. However, since we’ve covered parts of Wales in some relatively recent blogs, we felt that now was an appropriate time to look in more detail at the South West and, more particularly, at Bristol – it’s largest city.
Bristol – an Overview
Bristol City Council estimates the local population to be approximately 465,900 and notes that by 2031, it expects that figure to rise to over half a million. In a report titled ‘The Population of Bristol, December 2021’ it notes that the city is part of a wider urban area, where the population is already well over that number. It writes:
“Within England and Wales, Bristol is the 8th largest city and the 11th largest local authority. Bristol local authority accounts for 70% of the total population of the built-up area of the city, which is often referred to as ‘Greater Bristol’, or the ‘Bristol Urban Area’. The population of the Bristol Urban Area is estimated to be 670,300.”
Importantly for investors, this population is growing quickly – well ahead of the UK average rate. This is mostly due to natural organic growth in resident numbers – i.e. births simply outnumbering deaths. However, continuing economic growth and the presence of two popular universities are also helping to boost resident numbers. The combined effects of a large student body and an influx of new workers have meant that the city has an unusually high proportion of younger people.
A growing population inevitably translates into higher demand for residential property. So too does a growing tourism sector. The Covid pandemic had a severe effect on visitor numbers last year but the city and the wider region are now expecting holidaymakers to return in much larger numbers.
Finally, it’s also important to recognise that the city economy is growing steadily, particularly in higher-value sectors. Big investments by major employers and universities, coupled with publicly funded infrastructure improvements, should make Bristol an increasingly attractive place to live and work. Moreover, average incomes are already above the UK average but, as the make-up of the population shifts towards people working in more skilled roles, earnings should increase further, providing a firm foundation for continuing growth in both capital and rental values.
Demand for Local Property
In Bristol, demand for property is being affected by several factors:
· Growth in the domestic population
· A large student population
· A continuing influx of younger people
· Rising employment
· Tourism
Population Growth:
In December 2021, the local council wrote:
“In the 10 years since 2010, the total population of Bristol local authority is estimated to have increased by 42,800 people; an increase of 10.1%. This compares to an England and Wales increase of 7.2% over the same decade… In the event that pre-pandemic trends were to continue, the total population of Bristol would be projected to increase by 15% over the 25 year period … to reach a total population of 532,700 by 2043.”
The city’s rapid rate of growth is also acknowledged on the World Population Review website, which notes that with “10,080 people per square mile… (Bristol has) the 7th highest population density of any English district.”
This growth is adding to demand for property at a time when the local authority has been struggling to meet its housing supply targets. We’ll address this later on but, as a genera point, this marked imbalance between supply and demand is one of the principal drivers of price growth in the city.
Demographic Changes
The average age of Bristol residents is younger than for the UK as a whole. Bristol City Council notes that the growth in the local population includes a large increase in students living in Bristol during term time. It writes that “in 2019/20 there were 58,100 students in total registered at the two main Bristol universities. In the 5 years up to 2019/20 there was a 20% (+9,800) increase in university student numbers.”
However, that average age has also been affected by birth rates continuing to exceed death-rates, and by younger workers moving in to take up roles in emerging high-tech industries. The December 2021 Population Report records that:
“Bristol’s 85,700 children make up 18.4% of the total population, i.e. almost 1 in every five people living in Bristol is aged under 16.
“Bristol has a higher proportion of working age (16–64-year-old) people than nationally – 69% of the total population in Bristol is of working age compared to 62% in England and Wales. The highest proportions are amongst the 20–34-year-olds which make up almost a third (31%) of Bristol’s total population, compared to 20% nationally.
Working age is important to investors because the higher the proportion of people working in any given city, the more economically active that city is likely to be. That often translates into more people earning regular incomes, better prospects for local businesses, and more demand for higher-quality homes, whether rented or purchased.
The local authority notes that “the working age population in Bristol has increased by 29,300 people (+10%) since 2010, compared to an increase of 3% in England and Wales as a whole. The greatest increase was in the 20–34-year-olds, which increased by 22%, compared to just 5% nationally. This age group alone accounted for the majority (62%) of the total increase in population in Bristol during this period.”
This young demographic profile is the result of several influences – not least a large student body – but it has important consequences for property investors. Students, newly-arriving workers and young families typically have lower budgets than older residents. Given affordability pressures, that will typically mean that more of them will be seeking rented property rather than looking to buy. Similarly, they may well be seeking smaller one- and two-bedroom properties rather than larger family homes. In Bristol, that could potentially make smaller rented apartments more popular than in many other UK property markets.
The Student Market
There is no doubt that students account for a large segment of recent population growth in Bristol. The local authority notes that students now make up 8.3% of the total population of Bristol, but that student populations “tend to be concentrated in particular areas of the city including Central, Cotham, Clifton Down, Hotwells and Harbourside and Clifton, with concentrations also in Stoke Bishop and Fishponds.”
Of the 58,100 individuals studying in Bristol in the academic year 2019/20, 27,400 studied at the University of Bristol, and a further 30,700 at the University of the West of England (UWE). Bristol City Council notes that “in the last five years alone, the number of full-time students studying at the
University of Bristol increased by 29% … (and that) the number of overseas students studying at the two Bristol universities has more than doubled since 2001/2.”
However, the universities aren’t only important because they sustain a large student body; they are also significant employers and major investors in the local economy. The University of Bristol, for example, employs over 8,000 staff and is planning to build a new £300 million campus at Temple Meads. It is also a key partner in a number of business incubators, research facilities and centres of excellence.
For investors, this means a reliable (and growing) market for student accommodation, and higher demand more generally on the part of staff, local entrepreneurs and people employed in the city’s growth industries. Whether these workers are seeking rented or purchased accommodation, their collective demand should help to keep driving average values higher.
Rising Employment
Another important generator of demand for property is the continuing influx of workers – typically younger workers – who are descending upon Bristol to take up roles in growth sectors such as advanced engineering and the digital industries.
Bristol is witnessing strong growth in a number of higher-value sectors, thanks to ongoing investment in enterprise zones, R&D facilities, skills-development programmes and digital connectivity.
Invest Bristol+Bath notes that it has developed seven enterprise zones, including:
· Avonmouth - Severnside Enterprise Area: a 1,800 hectare site devoted to warehousing and energy processing.
· Bath and Somer Valley Enterprise Zone: a mix of office and manufacturing space, focused mainly on advanced engineering.
· Emersons Green Enterprise Area: a science park and growth hub supporting high-tech research by private and academic institutions.
· Filton Enterprise Area: an industrial park that’s home to innovations in the aerospace and aviation sectors.
· Junction 21 Enterprise Area: a mixed-use site that includes the Weston Business Quarter, the Food Enterprise Zone and Parklands Village.
· Bristol Temple Quarter and St Philip’s Marsh Regeneration Area: an enterprise zone that is expected to generate around 22,000 jobs over the 25-year duration of the project.
The last of these is worthy of particular note. Temple Quarter is one of the UK’s most important regeneration programmes. It’s already a hub for numerous financial and professional services, and to growing businesses in the creative and media sectors. The project has its own dedicated website, which lists many of the key developments now ongoing. Amongst others, they include:
· Mead Street: a mixed-use development set close to Temple Meads station. It will incorporate new homes, commercial space, and improvements to transport and the public realm.
· Temple Quarter Enterprise Campus: the University of Bristol has plans to create a £300 million campus close to the railway station. It will feature seven new buildings, including a £43 million Quantum Technologies Information Centre and a business innovation hub.
· Railway station redevelopment: improvements to a station that is expected to see commuter numbers double by 2030, from 11 million to 22 million. Works will coincide with £2 billion of Network Rail investments to electrify the Great Western route – resulting in reduced journey times to London. Moreover, a further £20 million will be allocated to local infrastructure improvements including a new MetroBus rapid public transport system and the MetroWest regional rail network.
Bristol’s inward investment team also points to a wealth of industrial centres of excellence, which are helping to accelerate economic growth. Examples include:
· Bristol Robotics Laboratory: a partnership between the University of the West of England, devoted to advancements in areas such as robotics, intelligent autonomous systems and bio-engineering.
· Bristol and Bath Science Park: offering specialist support for research-oriented science and technology companies.
· CAMERA: the Centre for the Analysis of Motion, Entertainment Research and Applications, supported by the University of Bath. It aims to accelerate growth in computer science, health and psychology.
· Bottle Yard Studios: the largest dedicated film and TV studio facility in the West of England.
· Centre for Modelling and Simulation: a digital engineering research facility supporting projects led by agencies such as the Aerospace Technology Institute, the Advanced Propulsion Centre and others.
· DETI: Digital Engineering Technology & Innovation is supported by the universities of Bristol, Bath and UWE, and by industry partners including Airbus and Rolls-Royce.
New enterprise zones are giving employers room to expand and recruit, and infrastructure investments are helping to make Bristol a more attractive city in which to invest. Small wonder, then, that businesses are growing and employment is on the rise. Bristol is seeing rapid growth in sectors including:
· Advanced engineering
· Aerospace
· Clean energy
· Creative & media
· Digital industries
· Financial & professional services
· Food & drink
· Life sciences
· Logistics
In September 2021, Business Live wrote:
“Bristol's landscape is set to be transformed over the next few years as billions of pounds are spent on new developments, including homes, offices and leisure spaces… The city's tech and creative scene, and its popularity with young professionals moving out of London, are among the reasons many investors are choosing Bristol.”
Notable elements of this ongoing transformation include the new Halo development at Finzels Reach, and a £350 million investment by Legal & General, which the company will use to convert disused land near the railway station into a “vibrant new urban quarter.” It expects to create two Grade A office blocks, a 350-room hotel, a conference centre and approximately 2,000 new jobs.
Other elements include a £100 million flood defence project, and the £175 million redevelopment of the iconic Bristol Soapworks building. This last scheme will feature a new tower block, public realm improvements and the creation of new office, retail and leisure space. The local authority estimates that these and other developments will see Bristol’s economy grow by £1.6 billion per annum once complete. This should inevitably deliver a substantial increase in local employment and a continuing inward migration of workers.
The Tourist Market
Tourism is the last item on our list of key drivers of demand for accommodation in Bristol. In 2019, before the pandemic struck, data produced by Destination Bristol showed that “the tourism economy in the Bristol and South Gloucestershire region was worth £1.4bn a year and supported over 29,000 jobs.” More generally, according to Visit West, it is reportedly worth more than £2.33bn across the surrounding region, and it sustains an estimated 45,000 jobs.
Covid-related restrictions hit visitor numbers hard, particularly because Bristol generally sees a much higher than average proportion of foreign tourists. However, with those restrictions becoming increasingly relaxed, the prospects for tourism in 2022 look considerably better. The city has prepared a busy calendar of tourist-friendly events, and with international tensions looking set to deter many from overseas travel, Bristol could well benefit from the continuing popularity of the ‘UK staycation.’
Tourist Market Composition
According to Visit West, the South West region receives “more than 33 million day trips and the third highest number of staying trips overall after Devon and Cornwall.” It also sees the highest number of international staying trips. It adds that “the region is also strong for business events and business travel.”
· “Of the total number of staying trips in 2019, approximately 76% were domestic, and 24% international.”
· “International trips generated 43% of all visitor nights and 40% of all visitor spend.”
· “Staying visits generate approximately £1bn of direct visitor spend.”
Looking beneath these regional figures, Bristol reportedly accounts for “52% of domestic visits and 57% of all international staying trips… Bristol had the highest number of domestic day visits with 41% of all day visits and 44% of all day visitor spend.” Total visitor expenditure in the city is estimated at £1.173 billion.
Bristol is therefore an undoubtedly popular tourist destination and, in the face of limited supply, tourist accommodation could see significant price growth in the years ahead.
Housing Supply in Bristol
Thus far, we’ve looked at just one side of the price equation: demand. However, supply is also a crucial factor, so it’s worth taking a moment to evaluate local supply and how it might fluctuate in the coming years.
In October 2021, Bristol City Council introduced a house-building plan called ‘Project 1000’. It covers the period 2022-2025 and seeks to build 2,000 homes each year, with half of these classed as affordable.
It’s an ambitious target but then it needs to be. The city has struggled with housing supply for some time now, and the council itself concedes that “with over 16,000 applicants on Bristol City Council’s Housing Register, the council’s priority for housing delivery remains the provision of affordable, rented homes.” In the executive summary to the plan, the council writes:
“Affordable housing need is spread across many different types of housing, including temporary accommodation for homeless households, adaptable and supported housing for people with care, support and accessibility needs, and general needs homes to rent and buy. From single people and young families, to retired households and those struggling to buy a home in the housing market, the breadth of need is considerable and varied across the city.”
The shortage of available properties in Bristol is a topic that often features in local and national media. For example, in October 2021, the BBC noted that “the council's housing land supply position has now dropped to 2.8 years, which equates to a shortfall of 8,597 homes over the current five- year period.”
A month later, the Bristol Post reported:
“Only 188 to 400 new affordable homes have been built each year for the past five years in Bristol. Meanwhile, more than 16,000 people are waiting for a council house, 930 households are in temporary accommodation, and the average Bristol resident now needs almost nine times their annual salary to be able to buy a house in the city… The council’s failure to deliver enough affordable housing to meet the city’s needs remains a “critical threat”, according to its latest register of risks.”
The new plans must therefore be considered against a background of continuing under-supply. In June 2021, the Bristol Housing Delivery Test Action Plan found that Bristol had achieved only 72% of its targeted housing requirement. Consequently, even if the new building programme proceeds exactly as planned, it’s likely to take many years before it will radically reduce that imbalance between supply and demand. What’s more, any growth in population, inward migration, student numbers or tourism will continually erode any supply-gains.
For the foreseeable future, the imbalance will remain and that should provide a firm foundation for steady growth in both capital and rental values.
Bristol’s Property Market in Numbers
· Average annual price growth (UK) +7.8% 1
· Average annual price growth (South West) +9.7% 1
· Average annual price growth (Bristol) +10.0% 2
· Average rent £1,350 pcm 2
· Average yield (BS1) +4.9% 3
· Average yield (BS13) +5.7% 3
· Average total 1-year return: +13.4% (BS1) / 14% (BS13) 3
Summary
In its latest Buy to Let City Tracker, the specialist lender Aldermore declared Bristol “the best city in the UK for buy to let investment.” It ranked the city top on the strength of five key metrics:
· Average total rent
· Short-term returns through yield
· Long-term return through house price growth over the past decade
· Vacancies as a proportion of total housing stock
· The percentage of the city population in the rental market.
To those who know the city, its pole position may not come as much of a surprise. Bristol is a market in which strong demand for property is stemming from population growth, and from demographic and economic changes. These forces are all pushing in the direction of higher values, and so too is the continuing under-supply of homes. The prospects for capital appreciation and rental gains therefore look good, especially in a city that is witnessing steady growth in employment and inward investment.
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To find out more about investment opportunities in Bristol or the South West more generally, please call our advisory team on 01244 343 355 or email sales@residential-estates.co.uk
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