£38 billion of prime residential development planned for
London, EC Harris finds
3 September 2012
- 70% increase in pipeline size since
last year
- Total floor area of new development equivalent to size of
Stratford Olympic Park
- Funding & delivery challenges moves potential peak delivery
backwards to at least 2016/17
The volume of
prime residential property being planned for London continues to
surge, with over 15,000 units worth in excess of £38 billion
currently earmarked for development over the next ten years
according to EC Harris, the global built asset
consultancy.
The annual EC Harris ‘London Prime Residential Development
Pipeline’ report shows that 125 schemes are currently at various
stages of site acquisition, planning and construction equating to a
total floor area of nearly 20 million square feet, equivalent to
the size of the Olympic Park in East London. This is an
increase of approximately 70% from last year’s report, fuelled by
developers and landowners responding to continued strong demand
from overseas cash purchasers for new residential property and
rising property values across prime London residential markets.
The report indicates planned development is strongest in the
Chelsea & Fulham areas with one in four (25%) of the units in
the pipeline located there, this is followed by developments on the
South Bank (17%), City and Fringe (12%), Midtown (11%) and
Kensington (10%).
2016 appears to be the peak year for delivery, with schemes
totalling circa 3,800 units in a race to progress and come to
market in that year alone. Two of the largest schemes on the
pipeline are the major regeneration schemes planned for Earls Court
and Battersea Power Station, each predicted to deliver several
hundred prime residential units over the course of the next decade,
reflecting that ‘prime’ is no longer confined to the likes of
Mayfair or Chelsea.
Mark Farmer, Head of Residential at EC Harris
said: “The size of the pipeline is a reflection of a massive
vote of confidence in London and in UK plc and will have only been
enhanced by this summer’s Olympics showcase. London prime
residential continues to act as a magnet for global investment, and
offers clear opportunities for properly organised and funded
developers and investors to generate healthy returns. However, this
positivity is tempered by some notes of caution. There are
significant risks to the realisation of the pipeline including the
sustainability of the unprecedented levels of international
investor and sales demand fuelling the lower end of the prime
market, a lack of development funding and a scalability of
specialist development skills needed to deliver these
opportunities.”
The size of the challenge for London’s development industry is
evident, with less than 500 new build prime units coming to market
during 2012 including final sales on high profile schemes such as
One Hyde Park, The Lancasters and the Shard. To achieve the
potential peak pipeline rate of development in 2016, an eight to
ten fold increase in development capacity would be required and,
more importantly, a significant increase in development funding
would also be needed.
Mark Farmer continues: “All these factors
will effectively act as a funnel through which supply is likely to
be controlled naturally and will, in all probability, smooth out
the potential ‘bubble’ indicated in 2016 / 2017, pushing it
downwards and further outwards. The timing of future schemes and
rate of delivery will always involve an element of conjecture. What
is undeniable though is the sheer size of the pipeline based on
current sentiment which is staggering.”
The report goes on to cite a number of issues that prime London
residential developers need to consider when progressing their
schemes:
• Eurozone crisis: The financial volatility across Europe
means that London is still being viewed as a safe haven for
investment, but any devaluing of the euro could make London more
expensive than in recent years.
• Stamp duty charges: Recent UK government changes to the
prime residential property threshold mean that there is a new price
point of £2million for prime London property which developers need
to adapt their schemes towards.
• Sales & marketing strategy: As the pipeline shows, this
is a crowded market, so the best product is important, even in
prime residential – location, specification, interior space
standards, amenities and even added value concierge type services
are even more important.
• Planning system: The UK is undergoing changes to its
planning regime which could impact the viability of London prime
residential and the speed of the planning process. For
example, providing planning exemption for office to residential
conversion projects could speed up the ability to convert period
properties in the likes of Belgravia, Mayfair or Chelsea from their
current office use back to residential.
Mark Farmer summarises: “In reality it is
the lower end of the prime London market that bears the greatest
risk of demand slowdown in the future relative to potential
oversupply. Developers working in this market need to work
hardest to define and differentiate their product, refine their
sales and marketing strategies and have a cautious and controlled
delivery strategy which can react to variable rates of sale and
external circumstances.”
For a full copy of the report, click
here
About the research
The EC Harris research
is based on a ‘snapshot’ analysis of new private residential
development projects currently being built or planned for delivery
in central London through to 2022. It used an estimation of
development programmes, total unit numbers, saleable area and sales
values to assess the total number and value of units being
delivered per annum in this market segment for the next ten years.
It only includes projects with an average sales value of greater
than circa £1,100/ft2, it excludes affordable housing unit numbers
as well as one off personal residence projects. It is not meant to
be an exhaustive analysis of all schemes in the public domain.
- ends -
Notes to editors
In this research the definition of London “prime residential”
schemes are projects that have a minimum average sales value of
circa £1,100 /ft2
For further press information please contact:
Andy Rowlands
EC Harris
+44 (0) 20 7833 6662
andy.rowlands@echarris.com
About EC Harris
EC Harris is a leading
global built asset consultancy. As an ARCADIS company, we have
access to approximately 22,000 professionals worldwide operating in
over 70 countries, 300 offices and generating in excess of €2.4
billion in revenue. Working across a wide range of market sectors,
we help our clients make the most from the money they spend on
their built assets. For more information visit www.echarris.com