Richard Adamson is joined by Jimmy Wilson and Mark Ibbotson from the Allsop Leeds office to unpack what is really happening in regional residential investment. The small buy-to-let landlord is being regulated out, and in their place come professionalised Propcos backed by private equity, family offices and overseas ultra-high-net-worth buyers hunting scale. Jimmy and Mark talk candidly about where pricing has landed, what vendors now have to accept to get deals away and why some stock trades while other stock stalls. They also make the case for the regions on fundamentals rather than sentiment, and each says how and where they would put £5m to work on air.
In this episode:
The landlord exodus. Regulation (Renters' Reform, EPC requirements) is pushing out the smaller property investor, and even some private landlords that have accumulated real scale, with one current instruction a portfolio built up over twenty years.
Who's replacing them. Propcos with private equity behind them, professionalising management and needing larger lot sizes, alongside overseas UHNW capital treating the UK as a safe haven for medium to long term wealth preservation.
Where pricing has moved. Prime, peripheral and tertiary yields have all shifted out, and the gap between pricing expectations and the cost of money is doing the work. Jimmy and Mark put numbers on it.
Freehold trades, leasehold struggles. Straightforward freehold blocks and house portfolios hold demand; long leaseholds, broken portfolios and geographically scattered stock are far harder, with fire safety and cladding remedial costs having a material effect.
The regional case. Population, first-time buyer age, rental growth and ten-year capital growth in the major regional cities, and why the fundamentals rather than the sentiment are the argument.
Institutional appetite. PRS versus BTR, supported and social housing, and the aggregation play needed to get portfolios to pension-fund scale.
£5m, on air. Where would each of them put it, and why? Jimmy and Mark pick a strategy and a location, and they don't pick the same thing.
Follow Allsop and our speakers James Wilson, Mark Ibbotson and Richard Adamson on LinkedIn.
James Wilson
Mark Ibbotson
Richard Adamson
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Richard Adamson Hello and welcome to the latest edition of the Allsop podcast. Allsop Prop Chats here in Leeds today, joined by Jimmy Wilson and Mark Ibbotson, who operate out of the Leeds office in the investment world. Residential investment world. So first things first, before we get away, gents, introduce yourselves and tell us a bit about how long you've been at Allsop, what your background is.
Jimmy Wilson James Wilson or Jimmy, as I'm known in the office. I've been at Allsop for nineteen years now.
Richard Adamson Is it really nineteen years?
Jimmy Wilson Nineteen years. So it's my twentieth year.
Richard Adamson Why have you not got any grey hair? I think if you've been in nineteen years, you should.
Jimmy Wilson Have a good hairdresser. Good hairdresser. We're all good. So yeah, I've been here nineteen years basically in the Leeds office, um specialise in residential investment and development in the sector, selling predominantly blocks of flats, portfolios of houses across the northern regions. So anything kind of Birmingham, Nottingham, North lot in the north west and up to Newcastle.
Richard Adamson So you are a lifer aren't you.
Jimmy Wilson I am, yeah, I.
Richard Adamson Was a graduate.
Jimmy Wilson I joined as a sandwich placement The student actually in two thousand and five and then managed to get a job on the back of it and been here ever since.
Richard Adamson You.
Jimmy Wilson Know.
Richard Adamson So yeah, you know. Mark.
Mark Ibbotson Yeah. So Mark Ibbotson, I joined Jimmy's team terrifyingly four and a half years ago. Doesn't feel that, does it at all. But yeah, four and a half years ago prior to that, I was I was actually in commercial capital markets in London for around eight years. Um, being at Allsop, this will be my thirteenth year in about a week's time. So wow. Yeah, another lifer, another lifer.
Richard Adamson Well, that's interesting though, isn't it? Having the commercial background as well, which I'm sure, yeah, along the way helps you.
Mark Ibbotson Exactly. We like to think that it kind of offers clients a holistic view of the market.
Richard Adamson That segues nicely on. So the market, where is the market at the moment? What are you experiencing in terms of we'll go on to various different things here, but buyer behaviours, but what's, you know, from a high level initially, where is the market at the moment? What are you guys finding?
Jimmy Wilson Um, we're in an okay place at the moment. Uh, I'm not going to lie to everybody and say, you know, in a record breaking market, because that's not true. It's difficult out there. Um, but I think what we are finding is that people are used to kind of these events happening and kind of just moving on and getting on with life. We all know what's happened in the last five years, and we all know what happened in January this year. And I think the market is more resilient than it's ever been, that's for sure. Um, but it doesn't make it any easier. But you know, we're here, we're doing deals. We've got some, a great client base and yeah, we plod on.
Richard Adamson Past what, six or seven years has been predictably unpredictable, isn't it. I think that's what we're saying.
Mark Ibbotson Yeah. And I think that, you know, clients are are used to that now as well. So although the market isn't um, you know, it's by no means easy, as Jimmy said, um, you know, it's, it's resilient and we're continuing to see people transact regularly.
Richard Adamson Yeah. I mean, we don't intend to go through all the pain that we've all been through since, well, since Covid and pre that and the rest of it has been a turbulent time. But what have you noticed more recently in terms of buyer behaviors and new buyers to the market? Are you seeing well put words in your mouth? Are buyers being less concerned about geographical location? Are they deal driven? Are there more southern buyers coming this way? What are you seeing in terms of what buyers are doing?
Mark Ibbotson I definitely think that we have seen a few new entrants into the market over the past two to three years, probably. And yes, it's it's sometimes London based investors, um, overseas investors as well. It's not, not so much, um, you know, geographically focused in the north in terms of where the investors are based. Um, so, so yeah, it's definitely an interesting time to be in this market and we're dealing with, with, with new investors quite regularly, aren't we?
Jimmy Wilson Yeah. I think we're seeing a, we've always had professional investors, so to speak. But I think we're dealing with more professional investors. I think that kind of that that local investor has kind of been pushed out of the market a little bit. I think we certainly see more regional investors. But that local investor who've got two or three buy to let houses have been pushed out of the market. Those people that have accumulated even, you know, larger portfolios, you know, we've got a portfolio at the moment where we've got one hundred houses. Somebody's just accumulated those over the last twenty years. You know, a lot of regulation coming in. We're seeing people like that exit the market.
Richard Adamson Because because of regulation or is this.
Jimmy Wilson I think they've just had enough. Quite frankly, I think there's a few factors there. Regulation, I think probably the straw that breaks the camel's back or.
Richard Adamson Renters reform in particular.
Jimmy Wilson Absolutely. Yeah. And they're coming to retirement age. And do they want to deal with, you know, renters reform regulation? Absolutely not. And so we're see in a new cohort of investors in the market that are actually, I don't want to say taking advantage of that, but they're in the market to kind of buy these portfolios and professionalize them. And that's kind of a big switch in the market we've seen over the last two to three years.
Richard Adamson Well, I guess that was in some parts. I mean, I completely agree with you. When I look back over the past, well, even a decade, ten years where it's become more expensive, more difficult and more challenging for private investors, the small landlords to actually enter the market and stay in the market as it's just not as lucrative for them to do that. And that's by design, isn't it? You know, the government are trying to trying to make it, you know, trying to get those private investors out of the market and make the market more professional, which won't necessarily give you better landlords, I have to add. You know, there's some really, really good private landlords there that have been driven out, but what other factors are there? I mean, it's, you know, we talk about renters reform and we're seeing that in the auction world as well, that we're seeing more people either exiting or reducing their exposure to that market, which might be driven by refinances and all that kind of stuff as well. What are the behaviors are you seeing? Are you seeing nervousness in the market about regulations on EPCs and capital expenditure? People have got to, to, to invest in?
Mark Ibbotson I think definitely, I think when, when you've got an investor that doesn't have the appetite or the willingness to, to, you know, go through the necessary steps and spend the money required to improve those properties to, to a minimum standard as, as will be. I mean, it's probably going to get pushed on again, isn't it? But, um, you know, that that kind of twenty or thirty day out there it is, it is causing nervousness. Yeah. And yeah, we're definitely seeing again, the less professional, the smaller scale landlords being, you know, driven out of that market, well, willingly. Um, so.
Richard Adamson What are you left with in terms of, and I know it will vary, but right here, right now, who, who are the buyers that you're dealing with and engaging with? Is it family offices? Is it.
Jimmy Wilson Is it we are seeing family offices. Yeah, I think we've seen a real range, actually. We've got private equity from abroad. You know, we sold a load of flats down in Bristol to some Spanish family money. But I think in the UK it's become more prop codes are coming into the market with private equity behind them. They're trying to professionalise the management piece. And by doing that they need larger portfolios. They need bigger chunks of cash to do that. And and that's the money we're finding in behind a lot of the acquisitions.
Mark Ibbotson Yeah. And also, you know, ultra high net worth individuals predominantly overseas who, you know, the UK is, has always been seen as a safe haven, particularly with events in the Middle East, which, you know, we don't need to to dwell on, but it's just encouraging that flow of capital out, out from that part of the world and into a really kind of solid foundation. And that is UK real estate, particularly residential.
Jimmy Wilson And I think adding to that, I think the one thing that they both have in common is finally, after all these years, they are looking at this management piece of. That is the way to create value.
Richard Adamson Yeah.
Jimmy Wilson Because eventually a lot of these people, a lot of them will hold, but a lot of them will be looking to sell out eventually to pension funds and things like that to get the scale. But to sitting behind that, as we've seen in the build to rent market, that management piece needs to be absolutely nailed. Yeah.
Richard Adamson Yeah. And what I mean, a big question, but which will help, I think some sellers. But what are buyers looking for? You know, what's popular, what's not. What do people want to buy and what can, what can sellers do to improve their asset and make it more saleable?
Mark Ibbotson Yeah. I mean, look, I think because of the increase in costs that we're all very familiar with at the moment, a kind of ready made, high quality product is often what's sought after. Um, that combined with location, um, and by location, I mean, you know, a strong regional centre with, with good tenant demand. Um, you know, we often find from clients that have these high quality assets that there's a, there's a queue out the door of tenants wanting that, um, and to have that kind of surety of, you know, continued rental income. Uh, it's very important and actually very comforting for them to, uh, you know, to be engaged in that way.
Richard Adamson In terms of, I know it will vary, but what shifts have you seen in yields in the past few years or even in the past few months or this year as a consequence of the war in Ukraine, Iran, cost of living crisis, the cost of debt, all those things. Where are you, I'm guessing yields more important than ever and net yield more important than ever.
Jimmy Wilson It is. Yeah. I mean, if we were to take something to market, we would always advertise a gross yield. And that always stems back to the fact that it's difficult to get to the bottom of what a true net yield is. That said, we do analyze stuff behind closed doors. Before we take stuff out and reporting back to clients on a net yield basis, because that's the true return that you're actually going to get on an asset. Where have we seen gross yields? Um, I think kind of prime and we are talking the press sector not build to rent sector here that we've probably, you know, prime central locations. We were previously talking six and a half to seven percent in more peripheral locations. We were probably eight percent to ten percent in tertiary locations. You're ten percent plus, I would have said that's pushed out by one hundred and fifty Bips.
Mark Ibbotson Yeah, yeah. Minimum. Yeah. Two hundred in, you know, less, less desirable locations. Yeah.
Richard Adamson So most things are either creeping towards double digits or well into double digits.
Jimmy Wilson Certainly for good stock in the north of England, you can pick up at eight and a half percent. And net yields are kind of creeping up towards seven percent I would say for really good stock in the north of England, you can pick some stuff up for six and a half, but it's seven percent now. It's where a lot of stuff.
Mark Ibbotson Is when the cost of money is five and a half to seven percent. You know, you need some margin in there. And that's ultimately what's what's driven that movement.
Richard Adamson And what is that? We talked about it briefly on the way down here. What does that translate to in terms of what we look at a discount from OMV.
Jimmy Wilson It varies depending on your asset. It can be anywhere between we. It can be anywhere between. If I say twenty percent, we're probably lying. It's twenty two and a half percent to thirty percent to make it work. And it depends, you know, if there's no yield there, then for, for an investor to buy something in and turn it out unit by unit over a period of time, they're going to need in the realms of thirty percent discount to the v p values.
Richard Adamson So when you come into selling anything, I suppose blocks or individual units sweating the rents as much as you can and getting the buildings as is compliant as you possibly can. Might be stating the obvious, but it makes a big, big difference in terms of how many people look at it and the sort of prices you're going to get.
Jimmy Wilson Absolutely. Yeah, yeah, without a doubt.
Richard Adamson I mean, in terms of in the northern regions, what cities are attractive to investors and why?
Mark Ibbotson Yeah. I mean, the kind of the main cities are your Manchester's, your Leeds, your Birmingham's, um, you know, economic hubs in their own rights. You've got government devolution that has encouraged big business to open landmark offices up in these locations as well. And then sitting probably tier below them is the likes of Sheffield, Liverpool, Newcastle. Um you know there's demand in all of these places. I would say if it's, if it's a well located building.
Richard Adamson And that's again it sounds like I'm stating the obvious, but these are hubs where people want to live, want to rent, are working, are studying.
Mark Ibbotson Yeah.
Richard Adamson And that's, that's really a flight to quality, isn't it? It's in places where you're never going to struggle to rent them out and let them out at good, healthy rents.
Mark Ibbotson Exactly. Strong fundamentals And, you know, there is a lack of rental stock in this country, whether that be in London or in the regions. Um, we were, you know, touching on some statistics the other day. And eighty percent of the UK's population is based outside of London. So that's a huge tenant pool that you've got to go at. Uh, and that tenant pool is only is only growing because the average age of a, of a first time buyer now with a lot of young people priced out is sitting at thirty four. So you've got, you know, a tenant pool that's actually quite mature as well. And I guess the further, the further up that kind of maturation line you go, the higher quality rental stock that is that people will will demand.
Richard Adamson Do you see as well a link between because those major cities that you mentioned and others that aren't mentioned as well, they are good university cities. Is there a correlation between that, where people come out of university and stay where they've studied, where they've gone away from their original homes?
Mark Ibbotson There's certainly an element of that. Yeah, yeah.
Jimmy Wilson I think retention rates are a big part of kind of an investor kind of process as to why they would invest in an area. Liverpool is a brilliant example of that. But there's other areas. I mean, you look at the performance of capital values over the last five and ten years over the last ten years in the UK. Leicester has been the highest in terms of its return or capital growth over the last ten years. You know, the Midlands has performed incredibly well. You know, places like Oldham, Greater Manchester have performed incredibly well and these are a lot of the you know, they don't have big universities. Leicester has a reasonable university, but Oldham and places like that, you know, you look at capital growth over the last ten years and this isn't a comparison, you know, to London necessarily. But you know where you've seen flat or marginal growth, you've seen between sixty and seventy percent growth in these regions a lot. A lot of that is down to London having seen that growth in the previous ten years. And so it is a mature market, whereas the northern regions had to mature. And I think over the last ten years we've seen that. I suppose the question is what happens in the next ten years.
Richard Adamson Yeah. Quite well. That's when we get SIB involved. And he tells you that there's never been a ten year period since day dot where there hasn't been capital growth, but I want to go down that route quite yet. Um, in terms of activity in the market, um what's driving that. What people are, you know, are people wanting to buy standalone portfolios in certain locations? Are they focusing on flats on houses or are they trying to mix up what they own in their portfolios? What behaviours are you seeing from buyers and what they want?
Jimmy Wilson I think we're seeing investors specialise probably in certain sectors. So what we see very little of is kind of somebody who's going to buy a portfolio of one hundred houses. Then next week go out and buy, you know, two hundred city centre flats. You know, we're seeing people targeting certain markets. They have an investment strategy. Yeah. And I think that's what we're seeing. It is more targeted investment in these areas, whether that be a portfolio in Liverpool or whether that be a city centre block of flats.
Richard Adamson Are you seeing are you seeing any difference in appetite for portfolios of houses in comparison to flats? Is there anything significant there or is it all just down to getting the right price?
Mark Ibbotson I think getting the right price, yes. And the other big differentiator is is tenure. Um we're finding that the demand for, for, you know, straightforward freehold blocks or freehold portfolios of houses, um, you know, has remained strong in a fairly tough economic environment. As soon as you start chucking long leaseholds into the mix or broken portfolios, um, or, you know, heavily geographically dispersed portfolios, it becomes much more challenging. Yeah. It's obvious.
Richard Adamson It's a management problem, isn't it?
Mark Ibbotson You It's a management problem. Yeah. Uh, and yeah, it's a, I don't know, a bit of a cultural, it is thing that, you know, investors are much more comfortable owning freehold properties because you have complete control as well.
Richard Adamson As risk and cost, isn't it? Going back to your point on gross to net, isn't it? You've got far more control over that.
Jimmy Wilson It's a big nervousness around the leasehold aspect about not having control over a building. You know, suddenly, you know, we've seen everything and we won't dive into this now, but the whole fire regulation piece and cladding and all that sort of stuff that people who don't have control over that block of flats and, you know, service charges being affected on the back of big costs to kind of to, to get cladding back to where it needs to be is having a massive effect on the market. And so that unbroken nature of keeping it under eighteen metres, certainly in this sector, that is where we're seeing interesting.
Richard Adamson I mean, looking ahead And that's the hardest thing to do, isn't it? In the past few years is trying to crystal ball gaze into what's going to happen next. You know what opportunities are out there. You know, we've got listeners that are probably sitting in both camps. So I've got stuff to sell. I'm thinking of selling also. I've got some money to buy something. What do you see coming down the track? Um, and how do you think the next six to twelve months are going to play out?
Jimmy Wilson I think it's that the nature of the investor that we're dealing with. They are looking, as we've said already, to kind of professionalize the management piece that is their value add in all of this. And along the way with that, we'll see rental growth. And I think probably a lot of people are hoping that we'll see some yield compression with hopefully the cost of debt coming down, which, you know, it's barely shifted over the last two years, certainly three years. And I think that combined then suddenly, you know, it affects value significantly. But I think that professionalizing what they're doing is where they're seeing a lot of value.
Richard Adamson So do you see the regional cities and big towns then still, as a consequence, continuing on the trajectory they're on, which is growth and more investment coming into them.
Mark Ibbotson Uh, yeah, I'd say so, definitely. I mean, now we've got Burnham in number ten. Um, for now. For now. Yeah. Um, he's, he's definitely making a strong push. I mean that's, that's where he made his name as mayor of Manchester. You've got all the other um kind of major mayoral, uh, areas predominantly in the north. Um, and there's been success off the back of that. Um you know Tracy Brabin from West Yorkshire, there's, you know, there's huge emphasis on, on this. And with Burnham opening number ten, um North in Manchester, it just shows that the government or this government certainly has the intention of trying to, uh, devolve or continue the devolution from London. Um and I think that's, you know, for people interested in or who do invest in the North, that's, that is a promising sign. Um, you know, London is amazing. It's great. It's one of the greatest cities in the world economically and for many other reasons. But I think for too long, the UK as a whole has probably relied on the power of London, and that's been recognised by the last few governments. Probably going back to Boris, to be honest. But um yeah, it's certainly we have certainly seen um and living in these places as well, living in Leeds, we've seen the growth of the city over the last decade into something that you know far better than it was previously.
Richard Adamson And there's a number of cities like that.
Jimmy Wilson Yeah. I think we keep hearing that word devolution, don't we. And it's kind of taking control out of Westminster a little bit. And I think it's for the good of the UK, quite frankly, that, you know, it's not all London centric. There is life outside London. And I think it's a great kind of. I think that's what a lot of investors see. And I think, you know, we've heard it from a lot of our investors that they're seeing this as a once in a lifetime opportunity to get into the northern markets at the current levels.
Mark Ibbotson Yeah, it's definitely a moment in time now where you can pick up very high quality stock for one hundred and fifty to two hundred Bips. Softer yield than you would have done in a in a stronger market. So, you know, in terms of wealth preservation plays or even just five to ten year holds, I think the idea is that, you know, you, you will very quickly see a return on your investment.
Richard Adamson Um, I mean, I agree with you guys, I, I've seen it for a long time coming whereby from the auction perspective, and you can analyze and see who's bidding, who's buying and all the rest of it and see where their geographical location I, where they live compared to what they're buying and see the correlations. When I started twenty five years ago, it kind of felt like if you lived in London, the South East, that's where you would specialize, stick to what you know, where you can get to, where you can deal with problems and don't go any further afield. That's completely flipped the other way around. Now, you know, we see our investors in this climate. They're ideal driven. If something stacks up and it's a nice investment. Building in Wakefield, in Bradford and Leeds, wherever it might be. They will buy it at the right price and they may live in London. So they're also chasing better yields, better returns for them on their money and can buy more properties, spread more risk. So we see it on a granular basis and you're seeing that filter through.
Jimmy Wilson Yeah. And I think since Covid, it's had a massive effect on the North. You know, there has been that spotlight on the north. I think we've still got a long way to go in terms of linking the North together. That was the most exciting thing for me of HS2 was it's a shame it didn't start in connecting kind of Birmingham, Manchester and Leeds together. We're in the process of connecting Leeds and Manchester better. It still takes me over two hours to get to Birmingham, which is crazy. I can get to London quicker, which shouldn't be the case, but I think as those transport links improve and connectivity in the North improves, it's such a great investment.
Richard Adamson Unquestionable, isn't it? If you can, if you're then going to encourage people that aren't working five days a week in an office to go further afield to work because it's not too difficult to do it. If the transport links are there and you can get in and out of these cities quicker. Same applies to London. You know, people living further outside of London and prepared to commute in if the communication links are strong enough, which.
Jimmy Wilson Yeah, you've seen it with the tube and people will live around the tube stations. It's exactly the same with the north, you know. But if I can get to Manchester in thirty minutes and rely on that rather than it taking an hour and potentially every other service doesn't work, and you can live in Leeds and work in Manchester and vice versa. And but I think if you look at the growth of the northern cities over the last five years, it's been well it's been brilliant hasn't it, you know. Yeah. I would say, you know, in terms of percentage growth, you know, you'd be twenty five thirty percent bigger city centres. Leeds, as we've seen huge growth of the actual city centre itself and people now wanting to live there.
Richard Adamson That's why I asked the question earlier about students because and this is this comes from nothing other than an observation rather than any facts or figures. But as these cities have got bigger and dare I say, better and more appealing. The connection to universities I find quite interesting is that I've anecdotally feel that people now come to university, fall in love with the Leeds and Manchester, Liverpool and stay. Whereas maybe twenty years ago they didn't because they went straight back down to London or back home.
Jimmy Wilson I think that's exactly right. And seeing the jobs that are being offered in these places, and it's quite high profile and, you know, Bank of England are in Leeds, you see channel four in Leeds and these are, you know, all right, there might not be providing hundreds and hundreds of jobs, but the names are there. And I think people are following quite frankly. And, you know, people wouldn't live in the city centre if the jobs weren't there.
Mark Ibbotson Yeah. It makes sense for a lot of these employers. You know, the the occupational rates are so much lower. Why not send a few thousand employees up to Leeds, Manchester, Birmingham and you know, your office rates are half of that which they are in London. But you know, people are equally as skilled.
Richard Adamson Well, I completely agree going off script really quite a bit. But I completely agree with you, and I think we've looked at it as a business ourselves, is actually, if you there are a number of downsides to just sticking to one location, i.e. just London, is that you're suddenly limiting your talent pool for any business to just one location and actually missing out on some really good, educated, educated, talented people to come into your business. So spreading those out into other offices and smaller intakes, I think is a really, really clever way of doing it. And arguably, it's cheaper rents and cheaper costs compared to having everybody based in London.
Jimmy Wilson And linking that back to kind of what the podcast is about. You know, if you've got more jobs and more city centre jobs and people living in the city centre, and when they're there, and then they have families and move out to the suburbs, well, naturally it becomes, you know, better for investment. Yeah.
Richard Adamson Yeah. Agreed. We haven't really touched on it too much, but institutions, how are you seeing their behaviour in terms of selling and buying. Are they in the market. Are they getting out the market more.
Mark Ibbotson Definitely more sellers than buyers at the moment. I would say um unless you disagree, Jimmy. But, you know, there are certain elements of, um, you know, social impact is a big one for, for funds and that's very easily, um, very easily had with residential property if you're providing a service. So yeah, we are, we are seeing various funds look at residential property from that angle. Um, but we're also seeing a fair few selling at the moment.
Jimmy Wilson We are, we just need to keep it kind of the build to rent piece and the press piece. You know, I think the build to rent piece is a different discussion. But in terms of the press sector, yeah, the kind of true funds are not massively invested in this sector at the moment. What we are seeing are the kind of the larger prop Co's trying to make an investable platform for the funds at a later date.
Richard Adamson By platform management platform, effectively. Yeah, yeah, yeah. Interesting. In terms of I've got some quick fire questions for you, which I'll be interested to know your answers on these. But first things first. You know, we've touched on a lot of these things, but in summary and sort of quick fire to it, you know, what are investors looking for today? They weren't looking for five years ago.
Mark Ibbotson Oh yeah. I mean, I would say yield is a is a big thing. But in locations that they potentially wouldn't have looked at five years ago. Um, I mean, what we have seen is investors acquiring properties on scale in secondary what we would class as secondary locations. Um, and, you know, one of those driving factors is, is the ability, and we've seen this for a few investors, the ability to purchase, uh, assets at a unit value of, of, of sub one hundred thousand per unit. Um, usually the, one of the main factors in choosing these locations is that they are commutable to a, to a major city. Yeah. Um, but yeah, I mean, I think in, in weaker markets. Historically, people have investors have moved away from those locations, whereas we're still seeing investors buying.
Jimmy Wilson Yeah. And I think we're seeing investors buy different in terms of capital values. They want bigger chunks of property. There's not as much interest. Previously. Historically, if we had a block of flats at say one million pounds, we'd probably get ten to twelve offers on it. We might get six or seven offers on it now. Yeah. A block of flats or a portfolio of houses between five and twenty million pounds. Historically, we probably would have only had a handful, two or three people that would have bid on it. Your funds, it's not big enough. Your private investor. It's too big. We're now saying, you know, stuff at fifteen, twenty million quid where we've got seven or eight offers on it. There's certainly a an influx of investors at that sort of level where they're trying to focus on building these portfolios and want to pick up bigger chunks of property.
Richard Adamson Because people want to scale it to a point earlier on its scaling thing.
Jimmy Wilson Correct. And doing it, you know, a million or two million at a time. It takes a long time to do. And, you know, it's not cost effective. So those kind of portfolios and blocks of flats over four or five million quid, again, in much more traction in the market.
Richard Adamson We've talked a bit about different regions and different areas, and we can't go through all of them. But which regions within the north have surprised you recently and why?
Jimmy Wilson Uh, the Midlands continues to kind of surprise me outside Birmingham. Um, the growth or the capital values. I mean, I looked at some stats earlier, I couldn't believe what the capital value rates were and how it grown over the last five or ten years. Um, and Greater Manchester as well. You know, you look at Oldham's and places like that that historically, you know, you could pick up a terrace for forty. I mean you'd have seen it in the auctions, forty, fifty grand. And you look at the capital values now, I think what continues to amaze me is that people are still. You go on to Rightmove and you look at the cheapest properties in the market. They are the ones that are selling quickly, quickest, which tells me that capital values are still on the rise because there's competition at those sorts of levels.
Richard Adamson Yeah, actually, there's one thing we haven't talked about which we weren't planning to, but the social housing sector and supported living, special needs, supported living, all that kind of stuff. Have you got much access into that market because it's a growing market, sadly. But it's and it's a strong market. Is it something that you've been exposed to much?
Mark Ibbotson Yeah. I mean, we've we, we have we're regularly approached, aren't we, on, on this type of property. Um, unfortunately, and we don't need to go into the detail, but after the whole fiasco, um, that, that market is, the market is very nervous around, uh, around supported housing. What we are starting to see is a more realistic approach to it. So, so long gone, uh, for some investors are these expectations have massively inflated prices relative to vacant possession value. Yeah. Um, what we are seeing now is that vendors are beginning to become more willing to, to sell at, um, at vacant possession value or just below. And that typically reflects quite a good net yield for these because they're often on, on lease wrappers. Um, there isn't a huge amount of transactional evidence at the moment, but um, we are definitely involved in the sale of um, a couple of those types of portfolios at the moment.
Richard Adamson And there's not a premium to Vzv, is there?
Mark Ibbotson No. I mean, some, some investors would like to still believe there was. I know I've broken a few hearts over over the last couple of years I think, but um, but yeah, we are seeing, um, we are seeing some of the more in tune investors come to realise that and I think that market could potentially open up a bit more over the next twelve, twenty four months.
Richard Adamson Back to my quick fire questions. That turned out not to be that quickfire? Because we're still doing that. But back to portfolios. What characteristics of a portfolio make them sought after?
Jimmy Wilson Price. Yeah. Everything has a price, doesn't it? And we talked about, you know, creating these portfolios that were oven ready and ready to go. But how often do we hear investors wanting to add value? Yeah. Well, if it's oven ready, there's not a lot of value to add in the short term. A lot of it comes down to price and that discussion around price. Yeah. And there are so many different stems to that of how we come up with what a property portfolio's prices. Um, yeah, we could put something in the market with a lot of added value, with a lot of value to add, and it'll outshine something where it's oven ready, but the price is wrong. Yeah. It all comes down to price and educating or having that conversation and an educated conversation with the vendor at the end of the day.
Richard Adamson And we talked about buyer behaviors again earlier on, but a buyer's prioritizing capital growth or yield or a bit of both. That's the that's that's the easy answer.
Mark Ibbotson But yeah, I think definitely yield at the moment because there's more certainty around it. Yeah. Um, but that is underpinned by the hope that that capital values do continue to, to, to rise. I mean, look, there's been a bit of a stagnation in a lot of across a lot of the, the regions in terms of capital.
Richard Adamson But rental growth pretty much everywhere.
Mark Ibbotson I think the five year course of rental growth is approaching thirty percent in a lot of major regional cities. So yeah, whilst your capital values have have kind of slowly crept up, um, your rental values have definitely increased. So yield is the driving factor. But as we touched on at the beginning of the, of our discussion, um, you know, the fundamentals of the UK market remain strong. And I, you know, I think there's confidence that capital values will, will continue to increase, albeit a bit slower, um, over, you know, into the future.
Richard Adamson Um, in terms of what are the biggest misconceptions of the regional or the northern residential investment market?
Mark Ibbotson I think the risk associated with it, to be honest, I think there's, there's no, you know, more risk than, than in strong southern areas. I think there's yeah, certainly people that are unfamiliar with, with the regional markets of the North and the Midlands might might be a little bit nervous about them. But, you know, ultimately we're all, we're all governed by the same institutions. y. So, you know, the fundamentals are still there. You're just getting a bit more bang for your buck as it were.
Jimmy Wilson Yeah, I completely agree with that. I think there is a bit of a misconception about risk in the north. It's if you manage something properly and you provide the right product, somebody's going to want to rent it from you. You know, everybody wants to up and leave without paying the rent. People have good jobs up here. Um, Yeah, I just think there is a complete misconception there amongst others.
Richard Adamson But that's changed a lot. I think it's changed though, hasn't it? Yeah.
Jimmy Wilson You tell me.
Richard Adamson I think yeah off air now I think it's changed. Going back to the point we were talking about earlier in terms of buyers behaviors that I see at auction, I think is the same as what you see broadly. And there would have been a time twenty years ago when people said, well, actually, I'm not investing in the North. There's no capital growth. I'm generalizing here, no capital growth, and I'm probably going to get voids, all that kind of sort of nonsense. And that's changed. Yeah, in many ways. One, it was a misconception in the first place. Two, a lot of the northern cities, as you alluded to, have had so much investment and growing cities and becoming these big metropolises. So it's becoming more attractive. So the myths have been dispelled, and the cities in the North are getting better at the same time. I think that's what you're seeing changing in buying habits. And it's easier now for buyers to buy and do research with Rightmove and online, online, online tools that you can buy in areas you're not necessarily familiar with with more confidence.
Jimmy Wilson I think that's exactly right. And if you're getting the right advice, then investing in a location that you're not as familiar with is, you know, there is a way forward sort of thing. It's easier than it used to be, as you say. Um, you know, we were talking before about investors who used to sit, ninety percent of investors used to sit in the auction room and buy and flip through the catalogue, but they wouldn't buy as much in the north because they're not as educated. But you look at the information available now and everybody sat at home bidding rather than being in the room. They can do what they need to do on a laptop and, you know, away they go.
Richard Adamson Carry on with their day job. Okay, last question before we wrap things up, um, you've got five million pounds to spend. What would you spend on? Where would it be and why?
Jimmy Wilson I should have.
Richard Adamson Thought about property. Just to be clear.
Jimmy Wilson Where does invest five million pounds. I would aggregate, um, a couple of portfolios that have been potentially mismanaged in areas where I see there's some capital growth and I would invest in those portfolios. Push the rents. Hold for five years and see where interest rates go.
Richard Adamson Location wise.
Jimmy Wilson Suburbs have good regional towns and cities.
Richard Adamson It's not going to be any more precise than that, is he? He's not going to give me a town or city.
Mark Ibbotson I think he's I think Jimmy's.
Jimmy Wilson Leads obviously.
Richard Adamson Leads. From there we go.
Mark Ibbotson Jimmy's definitely on to something there. I mean look, from what I've seen um over the over the past few years, you know. Yeah. It's those slightly, you know, outside of city center areas that are that are strong, you know, every, every regional city has very affluent parts. And what you're seeing with tenants still remaining tenants rather than entering the owner occupier market for, you know, over a decade, in a lot of cases, those, those investors, those investors, those tenants have good jobs, high paid jobs. They're wanting a premium rental products. And you know, you're seeing you are seeing very good returns from, from investing in these, in these types of locations. So yeah, five million pounds I get. Yeah, something in, you know, towards one of the suburbs, major regional city, decent university, take advantage of that graduate market coming through.
Richard Adamson Very good. I mean, look, I found this really interesting guys. And I think the message to the listeners are that, look, if they don't know it already is, there are great opportunities out there to invest in the northern regions. And the northern cities and towns. Always has been, always will be. It's alive and kicking. If you've got something you're looking to sell, want advice from us in terms of what to buy, what not to buy, get in touch. Um, so Jen, thanks for your time. Thank you. And if you've got any questions at home for either Jimmy or Mark or myself, do email me Richard Adamson at allsop dot co dot UK. And likewise, I said, every time there's any podcasts or things that we haven't done yet and you might find interesting, do get in touch again. Richard dot adamson at allsop dot co dot UK. Thanks for your time, gents.