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Strong property development growth in London set to continue

In 2012, over 7,300 new units exchanged in central London, a 50% increase year on year and the highest number recorded since the financial crisis.

These strong levels of activity look set to continue through 2013, according to the latest residential market research report from Jones Lang LaSalle. The firm is predicting average price rises of 2% in 2013 accelerating towards 8% per annum by 2016 in core locations.

‘The prominence of overseas buyers has undoubtedly been a driving force for this market. They are increasingly knowledgeable and are coming from a more diverse global network,’ said Peter Murray, lead residential director at Jones Lang LaSalle.

‘Asia-Pacific purchasers are still leading the pack but we are seeing others from areas such as the Middle East and Turkey following closely in their footsteps. But we must also not underestimate the activity from the domestic UK market. 2012 saw an increase in activity from UK purchasers and this positive upswing looks set to continue into 2013 as levels of interest are only set to increase,’ he explained.

The number of units launched in 2012 was also significantly higher, some 6,800 in 2012 compared to 5,600 in 2011 with core locations experiencing even higher levels of growth. Murray said that importantly, this increase in launch and sales activity has led to a steady contraction in the number of unsold units as demonstrated below but although this rise in activity looks promising, the market is still a long way from the boom levels of the mid-2000s.

The firm believes that while conditions are encouraging, polarisation between core and outer core markets is still evident with some schemes reporting exceptionally high levels of sales while interest at others has been minimal.

;It is all down to location and quality of product. Demand for schemes in core locations with good transport links and proximity to central London continue to do well. While overall activity in this market looks encouraging, developers must assess their options carefully,’ said Murray.

On average central London price growth across core and outer core locations rose by 3.5% in 2012. Core locations experienced an average 4.1% rise while outer core areas witnessed a 2.9% increase.
 
The report says that in the central London development market there are now 14,250 units under construction boosted by a surge in new starts in 2012. Developer sentiment remains positive with the majority feeling enthusiastic about progressing development.

‘The market continues to be dominated by volume developers with balance sheets that enable a broader range of financial solutions. Niche developers reliant on project based finance are experiencing an improving environment but continue to find the availability of finance tough going,’ said Andrew Frost, lead residential director at Jones Lang LaSalle.

The River submarket has the highest levels of construction with over 3,000 units and this is also the market where demand is greatest. The East has the second highest volume of development and the City is the third active.

According to Neil Chegwidden, residential research director at Jones Lang LaSalle, the outlook for the central London residential market over the next five years will be determined by three key factors; overseas demand, domestic demand and available supply.
 
‘Importantly, the outlook for all three looks to be supportive of further upward price growth and market activity. Prospects have also improved in recent months as concerns surrounding the tax position of some overseas buyers following the 2012 Budget consultation proved less imposing than originally thought. These factors together with the weakening of sterling, London’s safe haven status and the UK’s continued political stability mean London is likely to see significant inward capital flows over the next few years,’ he explained.

‘On supply, we expect new development activity to continue to increase over the next five years, but very importantly we do not forecast that this will be sufficient to meet the growing demands of London’s expanding population. So, as demand grows and supply shortages are exacerbated we believe price growth will be pushed towards 8% per annum by 2017,’ he added.

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