Why I Invested in Newcastle

By Jeremy Marshall
14 Feb 2022

The UK property market is currently seeing a boom after five years of Brexit uncertainty and Covid upheaval. Mortgage rates remain historically cheap, and expected inflation is likely to drive investors to further look at property as a hedge.

Given this environment, it’s no wonder that so many of us are looking at investing in a property or two in the UK.

In this article, I will give my personal story and a little insight into why I recently chose to invest in Newcastle over some possibly more fashionable cities.

Firstly, I’m Jeremy. I’m married and have a 2-year-old daughter. We’ve been living in Abu Dhabi for eight years and are planning for our future. The intention of this investment is to prepare for our child’s education in future, so we’re planning on holding the property for at least a decade.

I was interested in a relatively affordable property of circa GBP200,000 or below. I am not interested in HMOs or cheap flats that are difficult to manage remotely and difficult to mortgage as an expat. I believe in leverage so getting a mortgage is essential. So for me, it’s all about finding a safe and reliable renter that has a good chance of growth over the next 10 to 15 years. Therefore, considering my ideal budget and timeframe, the obvious decision is to look outside London to either the Midlands or the North.

It’s important to recognise that investors looking outside of London is not a new phenomenon. The first major push north came with the 2014 UK government’s ‘Northern Powerhouse’ initiative. The aim to de-risk and diversify the UK by promoting investment and regeneration in core northern cities has since proved a great success. Secondly, the announcement of Brexit in 2016 damaged global confidence in the UK macro-economy. Consequently, investors shied away from London’s high prices and low yields in favour of better returns in the Midlands and the North. Secondary cities in the UK have therefore outperformed the capital over the past six years and have a very bright outlook as their economies and populations expand.

As a property investor, I was looking to build my investment decision from the ground up with a tick box exercise. So initially, I need to do some googling and question the developer to see that certain market fundamentals exist for this property, namely:

  • Favourable lack of supply for a growing population - this is the most important principle, pressure on the market will ensure competition for renters and push prices up over time.
  • Regeneration - public and private spending can look like a lot of things, but essentially we want to see a different, more affluent place in 10 years’ time.
  • Mobile economy – can I find a diverse range of employers in sectors that are in a healthy position to ensure we have lots of good renters?
  • Property admin – does the service charge, ground rent and price per square foot stack up to be reasonable against comparable properties?

So how does Newcastle stack up against its rivals? Admittedly there are a handful of cities that could satisfy the above criteria. Birmingham and Manchester have led the charge as investment hotspots over the past six years, whilst Sheffield and Leeds could be considered in a similar light to Newcastle. I would be very comfortable investing in any of these and perhaps even some younger markets like Bolton, Stockport or Nottingham that might offer value. And value is the key word to explore. I have a lot of faith in Manchester and Birmingham, but I see Newcastle as perhaps five years behind in the cycle with average prices some 15/20% below these two.

Of course, being cheaper doesn’t guarantee better value, but if we align this with the upcoming surge of investments coming into Newcastle, it gives me confidence and, dare I say it, excitement.

Let’s have a look at the important stats…

Supply/Demand - Newcastle is the most populous city in the North East of England and 8th most in the UK overall, with a population of 307,710. This is expected to reach 324,480 by 2035. In the past decade, there has been a migration of 27,740 people, but only 7,150 new homes were built. With a continued projected undersupply, we can predict steady pressure on rental competition and growth. Tick.

Investment/Regeneration – Developers across the UK have trouble in 2022 to build at a cost less than 200 GBP per square foot. Now with Newcastle property prices rocketing north of GBP300 and GBP350 psf in some cases, we are seeing booming interest in developing out the city as it is ripe with opportunity and profit potential. Like many post-industrial cities, Newcastle and Gateshead have woken up to the development potential of their riverside. The Tyne snakes through the city, framing one of the most iconic city skylines in the UK. In the city, we see scores of investments in employment hubs, sciences and entertainment. Some cherry-picked highlights:

  1. Quayside Arena - approved in 2021, this is a £260 million riverside arena and hotel complex – due in 2023.
  2. The Whey Aye – whilst the capital has its iconic ‘London Eye’, Newcastle will soon have the hilariously named Whey Aye (say it in a Geordie accent). This will be Europe’s largest observation wheel and form part of the ‘Giants on the Quayside’ masterplan to build several attractions to bolster tourism by 698,000 per year. Due in 2024.
  3. Quayside West – approved in 2020 is another £250 million master project building 1000 new homes, shops and hotels on a former Elswick lead work industrial site on the riverside.
  4. Strawberry Place - a £170 million residential scheme next to Newcastle United’s football stadium underway and due 2023.
  5. The Helix Project – One of the largest regeneration schemes in Newcastle. A £350 million masterplan that will generate an estimated 4,000 jobs and create new workplaces, labs, an innovation hub and public spaces over a 24-acre site. The principal focus will be Tech, data and life sciences.
  6. Newcastle United Football Club – the much-loved club was recently purchased by the Public Investment Fund of Saudi Arabia, making it, in theory, the richest club in the world.

Tick. Tick. Tick. Tick.

The ‘Whey Aye’ wheel will be the largest in Europe on the banks of the Tyne.

The ‘Whey Aye’ wheel will be the largest in Europe on the banks of the Tyne.

Employment/Economy – Siemens, Sage PLC, Nestle, Proctor and Gamble, Norton Rose Fulbright, Virgin Money, HMRC, Barclays, Ubisoft and Concentrix all call Newcastle home. The industry sectors contributing the most to GDP in the city are: Tech and Digital, Corporate Services & Fintech, Life Sciences and Energy. Unemployment halved in the past ten years and is expected to level out to around 5% below the national average. To complement this, the average disposable income per capita will have increased 100% up to 2035. Tick.

Property Admin - Newcastle postcodes boast one of the highest average buy-to-let yields at 6.52%. The property I found was just below 6% which for me is great as it covers my costs to stay cash flow positive even after mortgage repayments. The service charge was reasonable. The ground rent was 0.1% which is the maximum it should be as many lenders will not lend if it is over this. I also had the now mandatory EWS1 and EPC certificates to prove the cladding and energy ratings were up to standard. Tick.

So with Newcastle proving itself as worthy of consideration in the same breath as Manchester and Birmingham, the decision came down to the X-factor – the gut feel.

Anecdotal evidence in my life is that people tend to like Newcastle and its people. The city is further north than some other post-industrial renaissance cities, but it holds possibly better branding than Birmingham, for instance, which possibly unfairly maintains a drab reputation amongst Brits. Newcastle has quirky energy and a sense of fun, which will continue to attract people and jobs.

It doesn’t just make sense; I like the city.

I can fly there from Dubai.

Quayside West is a 250 GBP million scheme on the banks of the Tyne.

Written by Jeremy Marshall

Head of Abu Dhabi

Having joined IP Global in 2013, Jeremy has built IP Global’s Abu Dhabi office and now advises our partners and clients across the globe. Jeremy has a deep knowledge of international property markets and the technicalities of building portfolios in real estate. His expertise encompasses property consulting, client risk analysis and market research. He now is a regular speaker at IP Global virtual events where his valuable insights have drawn in clients from across the world.

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