LONDON PRIME RESIDENTIAL PIPELINE 2016 - Arcadis
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
LONDON PRIME RESIDENTIAL PIPELINE 2016
Prime housing has been instrumental In recent years the shortage of
high quality, ‘fresh out of the box’
Significantly, the issues facing
the London market are potentially
luxury homes in central locations,
in lifting London’s residential and
playing into the hands of other
coupled with favourable exchange cities across the country.
rates, made for a heady mix that Birmingham and Manchester,
construction markets out of recession. investors simply could not resist.
This resulted in huge price hikes
in particular, are coming up on
the rails as developers and
In recent years, investors from all over right across the capital’s prime
market. In some areas values have
investors - boosted by the more
affordable land values and
the world have taken a shine to the accelerated up to fifty percent.
However, while planning and
the government’s long-term
infrastructure commitments - are
looking to alternative locations
capital’s real estate market, taking it development have continued
to surge ahead in light of these
for prime residential investment.
towards unprecedented levels of growth. trends, the market is evolving.
Successive tax tinkering has had a
The question we pose this year
is – how can developers and
Although London remains a magnet
big impact on the very top of the investors turn a maximum profit
market and its effects are not just in a market that keeps changing?
felt in prime but in every area of What are the consequences of
for developers and investors alike, the the market. Developers will now
need to be more agile if they want
rising costs and easing demand?
And, crucially, where next for the
market has matured significantly, to ensure the right margins. prime residential market?
One feature of the recent ‘boom’
requiring development opportunities years was sales values steadily
outstripping construction price Successive tax tinkering has had a big
to be carefully selected. inflation. However, higher stamp
duty charges – combined with
impact on every level of the market
other tax reforms and global
economic uncertainty – have
turned the thermostat down on
buyer demand, while construction
costs are now rising faster than
before.
EXECUTIVE
SUMMARY
• The amount of ‘prime’ homes • The Chancellor should scrap
due for construction in extra stamp duty on homes
London over the next ten above £1 million and, instead,
years is expected to hit over use the planning process to
35,000 with a total sales secure an enhanced level of
value of more than £77 billion affordable housing
• Chelsea & Fulham is the most • Although market conditions
popular location, followed by are changing and there are
the regeneration areas of the fears of an over-supply at
Southbank and the City and the lower end of prime,
fringe opportunities exist in mixed
use and mixed tenure
• The combined floor space developments
of these properties would
eclipse the entire City of • Significant growth likely to
London be seen in British regional
economies as major
• Despite initially encouraging infrastructure commitments,
investment to stimulate wider population and employment
growth, the government has growth drive prime demand
changed policies mid-cycle,
stemming buyer demand and, • Market will recover when
consequentially, hurting sales values rise relative
affordable housing allocations to construction inflation
between 2018 to 2020.
• Stamp duty, in particular, is
becoming more of a tax on
development than purchasing
with ‘stamp duty paid’ deals
impacting margins
SHORT TERM MEDIUM TERM LONG TERM
PROJECT NAME
(2015-2018) (2019-2021) (2022-2024)
1 Palace Street
10 Trinity Square
100 Piccadilly
100 West Cromwell Road
102 Jermyn Street
103-109 Wardour Street
11-15 Grosvenor Crescent
119 Ebury Street
119-122 Bayswater Road
1-3 Grosvenor Square
135 Grosvenor Road
151-161 Kensington High Street
17-35 Craven Hill Gardens
1-8 Clarges St, 82-84 Piccadilly and 29 Bolton Street
18-19 Buckingham Gate
185 Park Street
19 Queen Elizabeth Street, Butler's Wharf
190 Strand
19-27 Young Street
195 Warwick Road
20 Blackfriars
20 Grosvenor Square, W1
213-215 Warwick Road
22 Grosvenor Square
22 Tower Street
24 Buckingham Gate
257 City Road
26 Chapter Street
30 Old Burlington Street
31-36 Foley Street
35 Marylebone High Street
36 Park Street
36 St John's Wood Road
375 Kensington High Street
38 Hyde Park Gate
38-44 Lodge Road
38-62 Yeomans Row
4-5 Queen Street, Mayfair
406-408 The Strand
4-16 Artillery Row
48 Carey Street
5 & 6 Connaught Place
50-57 High Holborn
52-57 & 8-16 Princes Square
55 Broadway
55 Hans Place
55 Victoria Street
56 Curzon Street
60 Sloane Avenue
61 Oxford Street
62-68 Rosebery Avenue
66 Chiltern Street, W1
74-76 Chiltern Street
88 St. James Street
9 Marylebone Lane
90-93 Piccadilly (formerly In and Out Club)
9-10 St Mary at Hill
Abell & Cleland House, Westminster
Allen House
Amberley Waterfront Apartments
American Embassy, W1
Arundel Great Court
Barts Square - Phase 1
Barts Square - Phase 3
Battersea Power Station Phase 1 Circus West
Bishopsgate Goods Yard (part only)
Bolsover Street
Brewer Street Car Park
Cale Street
Cale Street
Centrepoint
Chambers Wharf (part only)
Chelsea Barracks , SW1
Chelsea Island
Cleveland Row and Russell Court
Confidential - West London
Lancer Square
Newcombe House Redevelopment
Audley Square Redevelopment
39 Hill Street, Mayfair
77 South Audley Street
1-5 Grosvenor Place
4 and 5 Queen Street
Oxford House
Portland House
Nova
Kings Gate
Confidential - Victoria
Covent Garden Estate - Various
Crossrail Tottenham Court Road, 91-101 Oxford Street
Dudley House
Dukes Lodge, Holland Park
Earls Court Masterplan
Eastbury House, 30 Albert Embankment
Elizabeth House, Waterloo
Embassy Gardens
35,000 HOMES
Fitzroy Place
Former Holland Park School, Airlie Gardens
Former TA site, 245 Warwick Road
Furnival House
Glebe Place
Goodman's Fields
Great Minster East, Marsham Street
Great Minster House North
Great Portland Street
Grosvenor Gardens House
Hamilton Grove
Hampton House, 20 Albert Embankment
Harrow Road
Heron Plaza
Hertsmere House
Hortensia Road
Hurlingham Gate
Hurlingham Retail Park
Hyde Park Barracks
John Lewis Clearings Site
Kensington Park Road
Kings Road Fire Station
Knighton Place
Knights House
Leinster Square
Lillie Square, SW6
London Dock
London Fire Brigade HQ, Albert Embankment (part only)
Lots Road Power Station
Marble Arch Tower
Merchant Square Buildings 1 & 6
Moxon Street
North Kensington Sports Centre
North Wharf Gardens - Phase 1
North Wharf Gardens - Phase 2
Odeon Kensington
One Blackfriars
One Nine Elms
One Tower Bridge
Pall Mall, St James's
Park Crescent
Parker House
Parker Tower
Principal Place, E1
Project London: Fulham Wharf
Rathbone Place
Regents Gate
Riverlight (part only)
Riverwalk House
Royal Mint Street
South Kensington Telephone Exchange, Draycott Avenue
South Kensington Underground Station
South Quay Plaza, 183-189 Marsh Wall
Southbank Place, Waterloo
Southbank Tower
St Dunstan's House, Fetter Lane, EC4
St Edmunds Terrace
St John’s Wood Barracks
Sugar Quay
Old War Office (57 Whitehall)
The Parabola, Kensington/Holland Green, Kensington High Street
(The Commonwealth Institute)
The Solitaire, 158 Brompton Road, SW3
Tottenham Court Road
Trenchard House 19-25 Broadwick Street
Vauxhall Bondway
Vauxhall Cross
Vauxhall Sky Gardens
Vauxhall Square
Vicarage Gate
Walton Street Police Station
103 - 109 Wardour Street
Westbourne House, Westbourne Grove
13-16 Jacobs Well Mews
The Stage
Soho Works Estate
Bankside Quarter
Fielden House
Old Queen Street
20 Poland Street
6 John Street
101 Prince of Wales Drive
Ransomes Wharf
24-30 West Smithfield
Palace Wharf
Aykon Nine Elms
22-29 Albert Embankment
33 Horseferry Road
Ten Broadway (New Scotland Yard)
Royal Mail Sorting Office
33 Greycoat Street
54-57 Great Marlborough Street
Alpha Square
HSBC Pension Fund
West End Green
Bayswater Project
29 New End
Millbank Tower
TOTAL UNITS 16,947 9,622 8,486
77 BILLION SALES VALUE
DEVELOPMENT Homes per year 2014 versus 2015 index
CONTINUES TO
6000
5000
SURGE AHEAD 4000
3000
The market has cooled in recent In terms of timings, we predict
months with some developers a two-year peak in the number 2000
reporting a slowdown in sales of new prime homes being
1000
and enquiries. In spite of this, completed in 2017 (5,414)
the development pipeline has and 2018 (5,130). At this point,
0
surged ahead 40 percent since construction will have completed 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
last year with over 10,000 on just under half of the total Homes per year 2014 index Homes per year 2015 index
additional homes now planned number of homes currently
for construction. planned, leaving a staggering
£36 billion worth of property
A major reason for this has been
still to be built. Given the amount SHORT TERM MEDIUM TERM LONG TERM
the continued attraction of prime
of development remaining and (2016 - 2018) (2019 - 2021) (2022 - 2025)
London new build to a wide
the possible need to re-configure
range of international investors.
the product mix in response to
Developers from the likes of
the current market dynamics,
Malaysia, Hong Kong, USA, India
it is conceivable that the some 16,947 9,622 8,486
and UAE, as well as the UK, have Homes
projects could take longer to Homes Homes
entered the market acquiring sites
be completed.
later in the cycle to bring forward
new schemes with revised and
intensified levels of development. 48% 28% 24%
Many of these are now forecast Pipeline Volume Pipeline Volume Pipeline Volume
to complete between 2019 and
2025.
£41 Billion £22 Billion £14 Billion
Sales Value Sales Value Sales Value
Our pipeline is based on a snapshot analysis of new private residential projects being built or planned for delivery in central London through to 2025 with an average sales value greater than £1,350/ft2.
Given the complex nature of planning, funding and phasing the delivery of these developments, estimating the delivery dates of schemes is not an exact science. However, by producing a theoretical timeline, we are able to discuss the headline
trends and shape of the ten-year pipeline.
MAPPING
OUT LOCATION KEY
Chelsea & Fulham - 10,914
Southbank - 8,863
Bayswater & Paddington - 933
Mayfair - 589
City & Fringe - 5,898 St. John’s Wood - 427
The exclusive west London One such area is the Southbank
Victoria & Pimlico - 1,960
postcodes of Chelsea & Fulham where continuing transformation Belgravia - 401
are currently proving the most has seen the area swiftly Midtown - 1,754 Knightsbridge - 343
popular areas of the capital. establishing itself as London’s Docklands - 1,600 Marylebone - 252
Here, almost 11,000 new luxury third major business district. Kensington - 1,104 Hampstead - 17
homes are planned with a sales Here, the value of prime residential 17
value of around £20 billion. development has reached £14
This figure, however, is heavily billion, up 37 percent on 2015.
influenced by the future Likewise, in the City and fringe the 427
regeneration of Earls Court ‘tech city’ revolution coupled with
which represents around two new Crossrail stations is proving 252
thirds of the planned development a growing draw for investment.
in the area, and for which the The total number of homes
programme is currently being planned in these areas has seen a 933 589
1,754
reviewed. 40 percent increase on last year.
5,898
In the main, however, the 401
concentration of new build 1,600
activity has been focused on 1,104 343
emerging locations. These areas
are outside the traditional ‘golden
postcodes’, where developers see
potential for house price growth 8,863
fuelled by regeneration schemes
creating improved business
10,914 1,960
links, social and retail amenities
and, critically, new transport
infrastructure.DIFFERENT GRADES OF LUXURY AVOIDING THE
SQUEEZE IN A
When it comes to types of home,
in terms of sales values, over
By contrast, we have seen very
low rates of growth in the number
supply at the bottom end of
prime, there still appears to be
CONSTANTLY
two thirds of new build prime of super prime and prime in opportunity for smaller and
properties are now valued more central locations such differentiated boutique schemes
between £1,350 - £1,750/ft2 as Kensington, Knightsbridge at the top end of the market in
CHANGING MARKET
with a further 21 percent valued and Belgravia. This reflects the excellent locations.
between £1,750 -£2,250/ft2. This higher land values in these areas,
demonstrates that the bulk of the coupled with a typically smaller
units are at the bottom end of the average size of development.
Looking ahead, we predict that In addition, we are also seeing
prime market. In comparison to fears of over
the financial viability of prime strategic reviews being carried
residential development will out on a number of projects. This
be under pressure for the next is in order to refine the proposed
two-to-three years. During this product mix and unit sizing to
Number of units per sales band 2014 vs 2015 period, construction costs are reflect the changing purchaser
25000 forecast to rise faster than demographics of a market which
sales values, making further now has a greater focus on owner
20000 erosion of developers’ margins occupiers and domestic home
a possibility until values for buyers.
prime property recover. This
Units per year 2014 index
15000 In the current climate, the
is forecast by several leading
development control process
10000 agents to be between 2018
needs to be stronger than ever
and 2020.
before. Fully exploring the
5000 Our view, supported by relationships between costs and
conversations with several value is vital when it comes to
0 clients, is that because of the both creating fundable schemes
1,350 -1,749 1,750 -2,499 >2,500 disparity between construction and securing the best possible
Number of units 2014 Number of units 2015 prices and sales values, it is returns. Given a blank sheet of
likely that developers of prime paper, our recommendation is
residential will now need to find to work backwards from a sales
at least 10 percent cost savings aspiration target when shaping a
to achieve their desired internal scheme, but the inevitable reality
rate of return and remain viable. is that developers are challenged
by having to deliver more for less.Design and build has been
the predominant form of
COST PRICE GROWTH
procurement and delivery in
the prime residential market in
recent years. However, many
VERSUS VALUE GROWTH
of these successful projects
were secured under contract market recovery
prior to the rebound in market 40
prices in 2014. Since that time,
developers have found it 35
increasingly expensive to pass
delivery risk to the point at
30
which the viability of projects
is being threatened.
25
In our view, more innovation in
Percentage change index
procurement practice is needed 20
as some clients can no longer
afford the multiple layers of 15
back-to-back risk pricing passing
through the supply chain to
10
a main contractor. Clearly,
smarter approaches than ever
5
before are needed when it
comes to managing value
creation and optimising the 0
technical elements of buildings,
such as the mechanical -5
and electrical services and
infrastructure, in order to help -10
2012 2013 2014 2015 2016 2017 2018 2019 2020
developers ‘beat the market’
and stay viable. Arcadis TPI % annual increase Arcadis TPI cummulative
Savills cummulative index Annual capital growth %
It will not be until 2018 that capital values will start moving ahead of
build costs, suggesting a window of recovery for the prime new build
market between 2018-2020.TAXING TIMES FOR PRIME Tax Tinkering – a chronology
PROPERTY IN THE CAPITAL
Introduction of tax on
‘enveloped dwellings’ valued
April 2013 over £2m. Capital gains tax
introduced for AETDs at 28%
on gains
The government initially Since the end of 2014, significantly Wider tax increases have also 15% stamp duty rate imposed
on purchases by ‘non-natural March 2014
encouraged investment in the higher stamp duty rates have created problems. Initially persons’ (corporate entities)
prime housing market as a been introduced for transactions observed as unlikely to dampen
means to stimulate economic at the high end of the market. On investors’ appetite for prime Tax free period reduced when
growth. However, since then, it top of this, as of April this year a property, the increasingly April 2014 converting a main residence
has changed its policies mid-way punitive, additional three percent convoluted and expensive regime into an investment property
through a development cycle, surcharge on second home has since been met with global Replacement of the stamp
raising taxes to fend off voters’ ownership was introduced. This currency devaluations, shocks in duty ‘slab’ system seeing a
higher tax burden on properties December 2014
concerns over rising house prices rate now applies to all buyers the stock market and falling
at the top end
and a consequential lack of supply regardless of where they are commodity values. PwC observe
Expansion of the ‘enveloped
for British families. from or the whether or not that the British property tax dwellings’ tax rules to cover
they are purchasing through a system is also now the most April 2015 properties valued at over £1
The ongoing catalogue of far
company structure, and have ‘complex’ in the world, endangering million and also over £500k
reaching tax reforms and fiscal from April 2016
proven damaging for the central London’s reputation as an
regulations have made the UK a
London prime market. Certain investment haven. 3% stamp duty surcharge on
more expensive and complicated
parts have virtually ground to a all second property purchasers April 2016
market in which to invest. Not The full impact of the government’s
standstill as a result.
only has this impacted many large tax tinkering is still unclear.
developers who have already Many homes in this bracket with Nevertheless, a convoluted Capping of mortgage interest
committed significant funds, but an average value of between tax system and the spectre of April 2017 tax relief down to 20%
it also risks a downward spiral of £4-£5 million have seen the further possible changes is,
less affordable homes being built stamp duty levy increase by undoubtedly, in danger of Removal of permanent
non-domicile tax status for
and supplied elsewhere, defeating over £150,000. While for those undermining confidence in a those living in the UK more April 2017
one of the core purposes of the intending these properties as a market that previously attracted than 15 of the last 20 years
reforms. second home, the levy has grown investors off the back of its track
by around £275,000. This increase record for political and financial Capital gains tax payable on
alone is well over the average stability. May 2019 profit of the sale of property
within 30 days
house price in the UK.
Full transition to taxing
landlords based on turnover April 2020
rather than profitSTAMP DUTY CHANGES
ON PRIME PROPERTY
£73,750 £363,750
£43,750 £273,750
£40,000 £210,000
£1m £3m
PROPERTY PROPERTY
PRICE PRICE
£663,750 £1,413,750
£513,750 £1,113,750
£350,000 £700,000
£5m £10m
PROPERTY PROPERTY
PRICE PRICE
Homes in £4-£5 million bracket have
seen the stamp duty levy increase by
as much as £275,000
OLD RATE - PRE 4 DECEMBER 2014 NEW RATE - PRIMARY RESIDENCE NEW RATE - SECONDARY RESIDENCETHE UNINTENDED
Another flashing light on the
dashboard is that of the mid-market.
With stamp duty growing rapidly
CONSEQUENCES OF at the highest price brackets, The choking effect of the new higher
there are also signs that those stamp duty rates is leading to delayed
looking to invest in residential
TAXING AT THE TOP
starts and putting affordable housing
property are now beginning to
contributions at risk
acquire properties valued around
the £1 million to £1.5 million
mark. This rush to market is at
Several industry experts have fewer affordable homes being risk of causing something of a
commented that the government delivered across the London distortion. Developers are now
has overshot its mark by taxing market, potentially aggravating being forced to focus on building
the upper end of the market too the well-documented housing more one bedroom flats and
severely at 12 percent. The higher crisis. fewer family homes in order to
rates of stamp duty on prime keep purchase prices below the
Home ownership is one of the magic £1.5 million threshold.
properties under the new slice
most important levers of social
system came at a time when the
mobility. However, if the purchasing Furthermore, the choking effect
market was already suffering from
process is too costly for prime of the new higher stamp duty
falling off-plan sales and rising
property, wealthy homeowners rates is leading, in some cases, to
construction costs. Despite
are less likely to buy upwards. delayed or cancelled starts for
fears of an over-supply of prime
This, in turn, leaves no room for new build prime developments.
properties in London, the reforms
middle-income buyers who also Consequentially, the badly-needed
have inadvertently exacerbated
wish to climb the ladder or the affordable housing contribution
an excess of properties at the
lower-income buyers beneath made by these schemes is also
top end of the market by increasing
them in the chain. In the medium cancelled out. Meanwhile, fear
the total costs involved in purchasing
term, the result of this stagnation also exist that landlords will also
them. The inevitable stand-off
is fewer transactions going just simply increase rents to offset
which has resulted between
through and prices increasing the impact of the reforms, making
purchasers and sellers has
further as supply continues to the capital even less affordable
induced a level of anxiety in the
outstrip demand. for renters.
development and finance markets
that is not conducive to stimulating
further new build. This means
there will be less in stamp duty
receipts to the Treasury, andOSBORNE’S HAIRCUT
The potential erosion to gross To ensure a buoyant housing
development value and margins market across the board, a
linked to stamp duty discounting reduction in the top rate of stamp
FOR DEVELOPERS is now a significant issue for
developers, especially when
considered in combination with
duty must be imposed to release
pressure on developers who have
committed to land purchases
unforeseen increases in construction under the coalition government
costs. The overall result of this is and prior to December 2014.
The key issue with stamp duty is
Prime London Developments a potential double whammy for Alternatively, the Chancellor
that it has to be paid with cash. In
Scheme of circa 240 apartments at a sales value of £1600/ft2 developers to navigate in their should scrap the extra stamp duty
a buyers’ market of dipping asset
appraisals. costs on new build schemes and,
values, many developers –
instead, negotiate directly with
particularly those of larger There is also a risk that higher developers for a higher direct
schemes – who cannot merely stamp duty charges could result affordable housing contribution
wait for the market to shift are 4% £9m in exponential downward impact at a more viable level. This would
particularly under pressure to hit on extra stamp on values, as price-sensitive
margin duty
avoid frightening developers and
offer incentives such as ‘stamp investors sit out the cycle and investors away from the London
duty paid’ in order to secure sales. wait for the bottom of the market market, holding back regeneration
The end result being that stamp prior to purchasing. and badly-needed affordable
duty is increasingly a tax on
housing supply.
developers rather than buyers. All units sold off-plan to investors
Assuming the extra cost of
the new stamp duty rates are
discounted from the sales prices,
as agreed on many new build Super Prime London Developments
schemes, we estimate the Scheme comprising circa 70 apartments at a sales value of £4000/ft2
charges take a serious chunk out
of gross development values and
developers’ margins.
7% £36m
hit on extra stamp
margin duty
All sold to second home owners
or investorsWHERE NEXT FOR DEVELOPERS?
In essence, the medium-term
impact of growing costs for prime
residential property will see
developers target locations where
Developers need to be nimble buyers can get more ‘bang for
and turn the difficult market to their buck’. This is particularly
their advantage. Given the fears the case with homes in the sub
expressed about a potential £1,000/ft2 bracket with a greater
over-supply of prime London variety of tenure. Such a move
homes and recent anxiety that may bring developers more
‘Flight to quality’ Mixed use The new £1million Outer London
investors may walk away from closely into direct competition
Large-scale, multi-unit Developments close to neighbourhoods Boroughs and
deposits on new build projects, we with house builders, or encourage
schemes have boomed stations and transport According to Oxford commuter belt more joint venture working.
may see changing patterns over hubs have big potential.
at the lower end of Economics, the sheer
the coming months and years. Acute under supply
prime, while the Combining prime pressure of population of housing will
pipeline for new build residential with retail growth will see increasingly mean
above £3,000/ft2 has and grade ‘A’ office London house prices that Outer London
remained quite flat. space – we forecast double by 2030. We Boroughs and
Overseas developers, continued growth predict that areas in commuter towns will
in particular, may in the pipeline at London where flats have to absorb the
prefer to invest in Canary Wharf, are currently valued population overspill
small to medium sized Paddington, Victoria at less than £1 from Central London.
projects with fewer and Hammersmith million, and houses This will see prices
units in higher value locations where new under £2 million, will grow substantially. As
locations where transport infrastructure be the next areas for a result we expect
supply is lower, such is gathering pace and prime development. additional growth in
as Kensington, values are increasing We expect to see locations such as
Knightsbridge, Mayfair between 25 and 30 growth in locations Wembley, Stratford,
and Marylebone. percent. such as Camden, Croydon, Brent Cross,
Kentish Town, Maida Cricklewood,
Vale, Clapham, Tottenham Hale,
Canada Water, Havering, and Abbey
Wapping and Old Wood.
Oak Common.EXPANDING Areas of opportunity
HORIZONS Midlands Engine
West Midlands Combined
Authority region
With some investors finding The real game changer that will The Northern Powerhouse
themselves priced out of the accelerate future regional growth Manchester, Liverpool, Leeds,
traditional London market, the is the move to fiscal devolution Sheffield and Hull
UK’s regional markets are fuelling deals across the UK. Devolved
opportunities for development, combined assemblies are West of England City Region
with the likes of Manchester, empowered to take control of Bristol, Bath, North Somerset
Birmingham, Leeds, Bristol, collecting business rates and and South Gloucestershire
Edinburgh and Glasgow coming co-ordinating the spatial planning
into sharper focus. Institutional and infrastructure priorities Oxfordshire and Cambridge
investors have seen the attraction across their regions in line with a
of these locations in terms of common economic development
accessible land values, capital plan. So, too, will enterprise zones
growth and yield. create clustering opportunities
for businesses, along with
The British government’s
improvements in amenities, social
commitment to improving
infrastructure, education, health
connectivity, including the likes
and housing.
of HS2 and HS3, are breathing
renewed confidence into regional
markets, such as Manchester and
Birmingham. Businesses are being
encouraged to locate operations
in these less expensive areas that
offer improved prospects and
infrastructure. In turn, the growth
in business interests is driving
population growth and an
increase in demand for housing London
in prime regional city locations
valued between £300/ft2 to
£475/ft2.WHAT DOES 2017 PROMISE FOR PRIME?
Following six-to-seven years of
unprecedented growth, it appears
the market has reached the
mid-point of the pipeline delivery
cycle and the government has
The challenges facing developers
2017 prime predictions acted to stem this in order to
have risen over the last twelve
quell fears over a prime London
months. The market has flattened
asset bubble crash.
considerably as demand from
overseas purchasers has waned Slowing pipeline growth in 2017 caused by market uncertainty and a potential Brexit Ironically, the high levels of
and successive rises in stamp duty taxation brought in at the top of
have hit hard. Taken within the the market now threaten to drive
Growth in City and Fringe, Canary Wharf and prime outer London to continue at pace
context of a June referendum a flood of vendors into the city’s
on EU membership, all of this mid-market, depriving families
combines to ‘frighten the horses’ Strategic reviews of projects leading to re-positioning of product mix aligned towards owner of more affordable housing stock
and a period of inertia has set in. occupiers and smaller apartments below £2m in the suburbs, while simultaneously
precipitating the risk of a glut
A renewed focus on cost reduction, leading to reduced basement and amenity provision where of prime London homes valued
business case is marginal above £2 million languishing
on the market and creating
Programme reviews for larger schemes linked to deferred delivery, phasing of build and re-financing distressed assets and investors.
Several developers detected
Shifting moods in procurement attitudes among developer clients away from simple ‘one size fits some time ago that the ‘cheese
all’ two stage design and build procurement was moving’ in London and have
responded accordingly. Some are
Clients becoming increasingly open to more hands-on control of risk and supply chain now actively pursuing mixed
relationships in order to optimise price tenure schemes and mixed use
developments located in outer
Increase in joint venture partnerships between developers and house builders to access supply London locations, the commuter
chain and spread risk belt and other regional cities
where the mainstream UK owner
Continued trend towards mixed use development including offices, hotels and retail occupier is the target. Other
developers have remained
focused on building out their
Increasingly polarised market with well-located, smaller boutique prime / super prime schemes
committed projects in the
and build to rent becoming preferred assets
prime central locations and
responding to shifting market
Possible re-awakening of the Asia capital markets in the event of post-Brexit devaluation of sterling. need by refining their product
mix, specification, delivery
programmes and sales strategies.Without a cut in stamp duty,
the next few years are likely to
see slower growth in the prime
London market. Against a
CONTACT
background of low transaction
Some are now actively pursuing
levels, we may also see more mixed tenure and mixed use schemes
developers delay bringing in outer London locations and the
forward projects and regeneration commuter belt
schemes that would, in turn,
benefit London’s civic amenity,
create jobs and aid the City’s
competitiveness.
In the meantime, the current
squeeze on viability and the Mark Cleverly
imbalance between construction
costs, sales values and higher Head of Commercial Development
transaction costs, coupled with T +44 (0)7736 900 211
concerns of over supply in some E mark.cleverly@arcadis.com
locations, suggests a period of
adjustment. We expect recovery
in the prime central London
market will come about once
sales values, as predicted,
rebound again between 2018
to 2020.
Until this happens, we expect the
lion’s share growth to be centred
around the fringes, prime outer
London and in certain regional
economic centres.www.arcadis.com/uk
@ArcadisUK
Arcadis United Kingdom
9627AUKYou can also read
