There has been quite a bit of recent press about the way our cities are changing and discussions around how they can adapt. As a result, I thought it would be interesting to examine the role of housing in modern cities and how it impacts on investors in residential property.
Change is nothing new, cities are dynamic and they have been evolving for generations. The UK was the first industrial nation, but the twentieth century – especially the second half – was the story of the loss of manufacturing enterprises and employment. This particularly hit the North of England, as well as parts of the Midlands and Scotland.
The past few decades have seen the rapid growth of service jobs in some formerly industrial cities and an accompanying urban renaissance. The Pandemic has further accelerated the pressures on our cities to adapt and evolve.
As someone who has been investing in Edinburgh for nearly 30 years, I have seen substantial changes over the years. As an investor I keep an eye on all sorts of indicators that may show changes to trends and markets.
Why investors need to understand changes to cityscape
For investors in the Private residential Sector (PRS) it is critical we understand the changing makeup of our cities. Landlords need to stay ahead of market trends and make informed decisions about their rental properties. They need to be aware of changes in demographics, economic growth, employment opportunities, and other factors that can influence the demand for rental properties. By understanding these dynamics, landlords can adjust their rental strategies and set appropriate rents.
Understanding market trends
Investors need to be aware of and analyse current market trends so they invest in the right locations. Understanding how cities are changing allows landlords to identify new investment opportunities. They can identify emerging neighbourhoods with growth potential, areas where property values are likely to increase, or areas undergoing redevelopment.
Changing dynamics in cities
Cities experience fluctuations in population, lifestyle preferences, and housing needs. Landlords who understand these changes can align their rental properties with the evolving demands of the city. For example, if a city is experiencing an influx of young professionals, landlords might focus on providing smaller, affordable apartments close to employment centres and amenities. By catering to the changing demand, landlords can maximize occupancy rates and rental income.
Infrastructure and regeneration
Modern cities, as part of adaption strategies, experience large scale infrastructure projects, urban development, and regeneration projects. Landlords need to be aware of these initiatives as they can significantly impact the desirability and value of their rental properties. For instance, the construction of new transportation systems, parks, shopping centres, or business districts can increase the attractiveness of certain neighbourhoods, making them more appealing for tenants and potentially increasing rental prices. At a local level the new tram link in Edinburgh is a good example of this.
Main drivers of change
There are a couple recent significant drivers of change to the urban landscape and the Pandemic had the effect of accentuating these:
1. Changing shopping habits
The first, and perhaps most obvious, is the way we shop. The retail sector has faced a barrage of challenges (some long-term and structural, others cyclical) over the last few years. The rise of online shopping and the convenience of home delivery has led to a decline in foot traffic and a decrease in the number of physical stores in city centres. It has been suggested that a further 20,000 stores will become obsolete and the retail stock could shrink by 70,000, or over 20%, over the next few years. The result is m
any once-bustling shopping districts are now dotted with boarded-up windows and “For Lease” signs. Uses of buildings are changing from retail towards a more hospitality based infrastructure. This has not only had an aesthetic impact on the city centres, but it has also impacted the economy.
2. Flexible working
The pandemic also accelerated the change to a more flexible approach to working. The shift to remote work showed that many jobs can be done effectively from home, and that employees can be just as productive, if not more so, when given the flexibility to work outside the traditional office environment. As a result, many companies are now looking at ways to make remote work a permanent option or offering hybrid models that allow employees to work from home some days and come into the office on others. JLL’s recent Future of Work survey showed that a quarter of organisations (24%) have already made remote working permanently available to all employees who want it, with a further 30% expecting to do so by 2025.
The future of work in the UK may see a blend of office-based and remote work arrangements, with a greater emphasis on flexibility and employee choice. As a result, I firmly believe the office remains an important part of the working environment and it will continue to play a crucial role for years to come. But it is likely that office occupation will also evolve further. In fact, JLL’s Future of Work survey showed many occupiers are now slightly reducing their overall footprint and focusing on best-in-class offices in the most accessible and amenity-rich locations. There is an interesting question around what will happen to office stock that will be surplus to requirements. There is no ‘one-size-fits-all’ answer to the question of whether to rebuild, reuse or repurpose perhaps to housing.
The result may well be less demand for space in central locations, as companies off load their more peripheral sites and instead focus on one or a few sites. With hybrid working, central, more accessible locations will become more desirable so companies can concentrate on one high quality hub with a large commuter catchment area.
3. Government Policy
There is also a third major driver of change and that is government policy. Underlying social and economic pressures in our cities have been recognised by successive governments, but in February 2022 the Levelling Up white paper was issued which laid out a roadmap and a set of measures.
It has an ambitious agenda: closing gaps in pay, productivity, education, skills and health, and improving transport, digital connectivity, housing and crime statistics. It aims to do this through a combination of measures, including higher R&D spend outside the Greater South East and devolution to city-regions across the UK, as well as specific initiatives such as investment zones.
Examples are the City Region deals which are packages of funding agreed between the Scottish, UK Governments and local partners. They are designed to bring about long-term strategic approaches to improving regional economies, aiming to help harness additional investment, create new jobs and accelerate inclusive economic growth. Each deal is tailored to its region, reflecting its individual economic strengths and weaknesses, and comprises a programme of interventions to support positive, transformative change
Scottish Government have committed to invest £300 million in the £1.3 billion Edinburgh and South East City Regions Deal.
So being immersed in a local area and understanding its dynamics helps investors make informed decisions and allows them to optimize their rental business.
Focus on housing
Let’s now focus on housing as a driver for change in our towns and cities especially the centres. By addressing housing challenges and ensuring adequate, affordable, and sustainable housing options, cities can foster growth, social equity, and a higher quality of life for their residents.
The UK currently has a profound and longstanding undersupply of homes. Current pressures on housebuilding, for example higher interest rates for consumers and businesses and higher construction costs, are a further exacerbating the supply demand imbalance. JLL forecast that there will be a national shortfall of 610,000 new homes over the next five years.
The best way in which to make centre uses more viable is to bring the people closer to them. In order to prosper our town and city centres need to provide a reason for people to visit, dwell and spend money in. Providing a mix of uses, away from just traditional retail is needed going forward. That still includes offices, schools, nurseries, doctors’ surgeries, as well a whole host of other uses on top of the usual coffee shops, barbers, bars and restaurants, alongside viable retail.
So, housing can be a key component of city centre regeneration efforts, as it can help to revitalize and transform urban areas.
Holyrood plans for Scotland
Late last year, the Scottish Government asked Scottish Futures Trust to look at the benefits of and barriers to town centre living, following the release of its Town Centre Action Plan Review.
Encouraging more people to live in town centres is a key policy aspiration for the Scottish Government, local authorities and a number of their partners, underpinning priorities around sustainability, net zero, inclusion and wellbeing.
Why housing is important for regeneration
There are several reasons why housing is important for city centre regeneration:
- Increased population density: When people live in the city centre, it increases the population density of the area, making it more lively and bustling. This can attract more businesses and investment, which can in turn create more job opportunities and economic growth.
- Reduced urban sprawl: By building housing in the city centre, it can help reduce urban sprawl and promote more sustainable development. This can lead to a more compact and walkable urban environment that is better for both the environment and the people who live there. Given the low-density form of many inner-city areas outside the core, regeneration does not have to mean displacement – it can lead to ‘intensification’ enabling better local amenities, transport and services for existing residents.
- Improved accessibility: City centre housing can make it easier for people to access the amenities and services in the area, such as shops, restaurants, and cultural attractions. This can help to promote more sustainable modes of transportation, such as walking, cycling, and public transit.
- Improved social and cultural amenities: A thriving city centre needs a mix of social and cultural amenities to make it an attractive place to live. By building housing in the city centre, it can help create a critical mass of residents that can support these amenities, such as restaurants, cafes, and cultural institutions.
- Increased diversity: City centre housing can help promote a more diverse and inclusive community, bringing together people from different backgrounds and income levels. This can create a more vibrant and dynamic urban environment that is attractive to both residents and visitors alike.
- Addressing housing shortages: Many cities are experiencing a shortage of affordable housing, and adding more housing to city centres can help to address this issue. By creating a range of housing options, from affordable housing to luxury apartments, cities can ensure that there is something for everyone.
- Social cohesion: A mix of housing types and tenures can create a more diverse and inclusive community, which can help to promote social cohesion and reduce social isolation. This can be particularly important in city centres, which can be highly segregated and polarized.
There was some talk after the pandemic that city centre living would become less attractive, but in reality, this is far from what we have seen. City living remains popular, recent rental data points towards a renewed demand for properties in urban areas with rental growth in Scotland’s major cities outstripping that of rural locations.
Overall, housing is a critical component of city centre regeneration because it can help create a more liveable, sustainable, and vibrant urban environment that is attractive to residents, businesses, and visitors. It is also critical for a city like Edinburgh that is experiencing high population growth, the Edinburgh metro area reached 554,000 residents this year an increase of 0.91% on last year. It is expected that this growth will continue.
So, taking all of the above into consideration investors need to stay informed about urban development. This enables them to make informed decisions about expanding their property portfolio, acquiring new properties, or strategically selling existing ones. But it is hugely complex with many different variables some of which I have looked at above. To be successful an investor really needs to have a deep understanding of a local area with real insight to the drivers of change. They need to try and stay ahead of trends as they develop. All this takes time, local knowledge and ongoing research thus is very difficult to do this remotely.
If an investor is looking to purchase assets outside of their local area then really they need high quality professional regional advice. Glenham, as a Letting Agent and asset management company, is intimately involved in the PRS and the local market in Edinburgh and central belt Scotland. We continually and actively monitor the changing cityscape and market trends to ensure we mitigate our client’s risk while at the same time seeking to ensure they benefit from the best opportunities to maximise their returns. We are investors ourselves with many years of experience and a proven track record in the Edinburgh residential rental market and as such we are uniquely placed to offer landlords and potential investors professional acquisition and asset management advice.
Get in touch today for more information on how we can help you.