UK house builders eager to buy development land pushing up values, index reveals
House builders in the UK looking to secure a five year pipeline are pushing up the value of residential development land at a rate not seen since 2010, according to new data from international real estate adviser, Savills.
Price growth continues to be led by the South East, but sentiment is improving across the UK and there are now early signs of life in key urban markets such as Manchester and Birmingham that have remained dormant since 2008.
Greenfield development land prices grew by 3% in the final quarter of 2013, the highest rate of quarterly growth since 2010, according to the Savills residential development land index, to finish the year up 6.5%, with urban land values growing by 6.7% over the same period.
Savills says that improved confidence in the continued return towards functioning markets has also pushed up the value of large sites, with 30 plus acre permissioned sites out performing smaller one and five acre sites last year.
The data shows that the value of 30 acre permissioned sites increased by 7.5% in 2013 and was up 3.7% in the fourth quarter alone. This compares with 5.8% and 6.4% for one and five acre sites, respectively.
Larger permissioned sites in better markets with capacity for up to 200 units have been targeted by house builders and developers looking to replenish their supply pipeline, in order to continue building out at the higher rates that are now being achieved.
Strategic land is also back in play, as investors, developers and financiers commit to the UK market recovery most notably in the stronger markets in which it is possible to sell quickly enough to generate a competitive return on capital. Many such sites, stalled in the downturn, are entering a new phase of activity, with plans re-evaluated for the new market era.
The Savills valuer survey also confirms that there has been a significant improvement in sentiment. Some 76% of the 90 locations surveyed reported positive sentiment in the final quarter of 2013, compared to 69% in the preceding three months.
Also, there was a sharp increase in the number of locations recording price rises on closed deals with 68% of green field locations reporting a value uplift compared to just 31% in the third quarter.
‘Improved confidence in the housing market is playing out in the land markets, with value growth driven by a strong demand for land,’ said Jim Ward, Savills director of residential research.
‘Acquisitive house builders are now channelling debt and equity into longer term sites to secure pipeline, in a clear acknowledgement that sales rates and therefore optimum build rates have bottomed out in all but the most challenged locations,’ he explained.
‘This increased demand, in a market where supply remains constrained, means that land values are expected to continue their upwards trajectory. This accentuates the need for the volume of land coming through the reformed planning system to continue increasing at the rates we have seen during the last 18 months,’ he added.
Details from the report show well located sites in markets such as Oxford and Sevenoaks have already exceeded former peak values, while commuter locations such as High Wycombe and Reading are fast approaching their former highs.
Savills also says that Help to Buy has been a catalyst for activity in lower value markets. Marked land price rises were recorded in Durham, Leeds and Sheffield, albeit off a low base, and there are signs of renewed market interest in some Birmingham and Manchester city centre sites although deals remain some way off.
In London, a strong mainstream market and a growing supply/demand imbalance means there is real copper bottomed opportunity in the lower and mid-mainstream sector outside of zones 1 and 2, with new build sales values under £700 per square foot.
