More than 6,000 new homes have been built over the last three years in the East of London but supply has not kept up with demand and as a result prices have increased, according to a new analysis.
In Canary Wharf more than 2,900 units were completed between 2015 and 2017, accounting for 52% of total new housing delivery in Tower Hamlets, some 1,800 new homes have been built in Royal Docks and just over 1,300 have been built in the Olympic Park, together accounting for 87% of new housing delivery in Newham.
But the report from real estate firm Knight Frank points out that at the same time the number of people living in this part of London has soared. The population of Newham has risen by an estimated 20,000 since 2014, according to population models based on new housing data compiled by the Greater London Assembly (GLA). In Tower Hamlets, growth has been even greater, rising by an estimated 25,000 new residents over the same time.
The result is that in all three areas the housing market is outperforming the wider prime London market. According to Knight Frank’s analysis of Land Registry data growth of 12% has been seen in Canary Wharf, 26% in Royal Docks and 32% in the Olympic Park.
This compares with a 5.7% fall in prime central London. Prices in Greater London rose by 17% over the same period. An analysis of listings data for the three areas also highlights a longer term shift in pricing, with 123% more properties offered for sale with a value above £1 million in 2016 compared with 2012, led by new developments
‘The past few years have seen some big changes in market conditions which have had implications on land supply, scheme gestation periods and the sale of end product. 2015 saw ground breaking achievements and sales volumes for some of the standout schemes in East London, notably Royal Wharf. There was momentum in the market from both UK and overseas developers and the prospects for supply looked strong,’ said Charlie Hart, dead of City and East Residential Development at Knight Frank.
‘However, in more recent times we have had a number of disruptors in the form of Brexit and Government cooling measures. We have also had recent changes in planning policy direction with a new Mayor in City Hall. The combination of these measures has been significant and as a corollary, developers have been forced to review many of their business plans to cope with not only the shifting conditions and funding environments, but also new tax regimes which will change the balance of their risk /reward returns,’ he explained.
‘The uncertainty within the macroeconomic world has also impacted upon purchasers with many now worried about the future direction of pricing. Accordingly, rates of sale have been lowered as buyers are adopting a wait and see strategy. This is particularly relevant to the UK buyer. To compensate, developers have been proactive in the overseas market, particularly in China where there is still reasonable demand for good schemes. This is driven by many factors not least currency,’ he added.
Looking ahead in Canary Wharf the current residential pipeline is around 17,000 units, with 8,220 under construction and just over 8,700 units with planning permission but GLA population estimates suggest that 30,000 new residents could potentially move to Canary Wharf over the next 10 years.
At Queen Elizabeth Olympic Park many of the structures built for the 2012 Olympic Games have been converted for residential or commercial use. The former Athletes Village is one of London’s largest Build to Rent developments for example. Development is already underway on a large scale, with 1,212 units across all tenures completed between the start of 2015 and the second quarter of 2017.
Royal Docks is one of London’s largest development areas, tipped to become the capital’s third financial district, creating a new employment hub served by Crossrail and DLR services as well as international travel from London City Airport.
Some five million square feet of commercial space and up to 21,000 jobs could be delivered at Silvertown in addition to some 3,000 new homes, while a further 30,000 jobs are anticipated in Royal Albert Docks, driven by the creation of a new Asian Business Port (ABP).
The report says that the ambition to create a new business community is matched by large scale residential development. Over 1,100 new homes have been built in Royal Docks since the start of 2015.
Indeed, the scale of development is reflected by population growth estimates, with the GLA forecasting a 71% increase in Royal Docks’ population over the next decade. This exceeds the growth anticipated in both the Olympic Park and Canary Wharf.
The report points out that in 2018 the Elizabeth Line, the operational name for Crossrail, will start running from Canary Wharf and Custom House stations through to central London. By the end of 2019, the line will be fully operational, reducing journey times throughout the Capital.
Given the residential, commercial and retail development taking place in all of these locations, the addition of the new transport link will further enhance the market and Knight Frank’s recent Crossrail report, published in 2017, found that house prices along the route had outperformed the wider local markets by an average of 7% since Royal Assent was granted in 2008.
With the Elizabeth Line now less than two years from being fully operational, there is likely to be increased demand from buyers and renters for property along the line which may help underpin price growth and development going forward.
Hackney Wick, situated on the edge of the Olympic Park, is also benefitting from public sector led regeneration and the report also points out that plans are in place to create a new neighbourhood with thousands of new homes, live/work dwellings, workshops and small business premises, building on its status as a cultural hub.
According to Hart the housing market is facing a dichotomy as the Government wants more homes to be built for British buyers, most notably more affordable housing. ‘This requires more developers to build more product at a time when the economics are being severely tested, and production chain and build costs are becoming increasingly hard to control. This does not make for an easy situation,’ he said.
‘We absolutely support the drive for the provision of more affordable housing and the industry, working alongside all levels of Government, need to become more creative. Currently there is little give in the system with all stakeholders looking to over capitalise their position at all stages of the delivery chain. We need to see more inclusive thinking and a move to longer term partnership arrangements with land owners contributing by treating the sale process as a long term investment and not a short term capital play,’ he explained.
‘Similarly, Government needs to realise that development is not like producing widgets, scheme characteristics need to be reflected into design and concept. Adopting an overly binary approach will not yield desired increases in supply that the academic modelling forecasts. Unless we see more inclusive and sophisticated thinking, the prospects for the supply chain do not look encouraging and the people who will suffer will be those looking to get into the housing market,’ he concluded.
