Demand set to outstrip supply in London housing market for next decade

New forecasts suggest that demand for London property will continue to outstrip supply over the next decade but some developers may need to recalibrate their expectations when it comes to top bracket sales.

The predictions published in Knight Frank's new London Development 2012 report are based on the results of new modelling of household growth forecasts based on the latest census data which give an estimate of demand in central and wider London over the next 10 years.

The figures suggest that in the wider London market, an average of around 24,000 units per year could be built over the next ten years, but there will be additional demand for an extra 37,000 homes per year. The shortfall in central London is even more pronounced, especially when the demand for second homes is taken into account.

‘Our figures suggest that overall undersupply will continue to be a feature of the Greater London market. The shortfall in planned housing is around 36% over the next ten years. In central London, which incorporates many of the prime central London postcodes, the shortfall rises to 55%,’ explained Grainne Gilmore, head of residential research at Knight Frank.

Knight Frank also warns that the continued undersupply in the market may not guard against possible challenges for schemes which are not priced sensibly, especially those targeting the top end of the market.

 ‘The strength of sales over the past few years has made developers concentrate on the prime and super-prime segments of the market. With values surging across the Capital, it has been tempting for developers to put upward pressure on prices,’ said Liam Bailey, head of residential research at Knight Frank.

‘The problem comes when this strategy is applied to sites with secondary characteristics. This leads to unrealistic pricing, and to unsuitable buildings being brought forward for development,’ he explained.

‘Developers should temper their expectations according to the nature and location of each site. The biggest shift may need to be to the current mind-set that they need to build, in every part of London, bigger units to maximise pound per square feet values,’ he added.