Developers putting a new emphasis on more affordable new homes in London
The development landscape in London has changed in the last two years with some areas having the potential for residential property prices to outperform the wider housing market, according to new research.
They include areas such as Mayfair, King’s Cross, Earl’s Court and Farringdon in central London, as well as Camden, Shoreditch and Hackney, along with the Royal Docks, West Ham and Leyton.
The analysis from real estate firm Knight Frank looks specifically at the potential performance of new homes in these areas and takes into account transport and infrastructure impact on prices between now and 2021.
Since the firm’s previous development hotspot report published in 2015, there have been a number of changes triggered by political and economic policies with planning in particular seeing significant changes following the election of current London Mayor Sadiq Khan.
The new development hotspots report features a wider geographical spread than previous reports. In terms of values, the majority are localities where new build developments are priced at under £800 per square foot and most are also outside zone 1. This emphasises the changing landscape for development in London, with a greater focus on affordability, the report says.
One of the biggest impacts is likely to come with the opening of the Queen Elizabeth Line (Crossrail). ‘In many cases the opening of the high speed rail link from the end of next year has already been priced into sales values in and around station hubs, although for stations where large scale development is still in the pipeline, pricing could reflect this in the future,’ the report explains.
‘The changing dynamics of the London market in the last two years have also had an impact on the performance of some of our 2015 hotspots. Some of these areas have not seen the growth in pricing over the timeframe forecast, but are still seen as areas of opportunity,’ said James Keegan of Knight Frank’s residential development consultancy.
‘The financial demands of undertaking large urban renewal projects are material and it is essential that it is recognised by all parties that pump priming prices is a necessity, not only to ensure financial viability but also to encourage developers, through profit, to commit to these projects,’ he explained.
‘Given the current conditions, particular attention and emphasis is needed to ensure the built environment is of the highest quality. In particular we believe many schemes need to over stretch the upfront cashflow to deliver exemplar product set into a high quality realm. Where successful, the rewards will follow,’ he pointed out.
‘However, it is important that these are not seen just as super profit, instead they should be considered in the context of each scheme’s long-term heritage and environmental contribution,’ he added.
Among the locations highlighted is Earl’s Court where prices currently at £1.650 per square meter are forecast to rise to £2,100 by 2021 while in Camden prices are projected to rise from £1,100 to £1,500 over the same timescale.
East London has a number of areas where prices growth is set to be strong. The report forecasts that in the Royal Docks prices are set to rise from £800 per square foot to £1,000, in West Ham from £700 to £950 and in Leyton from £675 to £800.
The report points out that the net supply of new housing London rose to 39,560 in 2016/2017, compared to the 66,000 new homes a year needed in the capital and this imbalance looks set to continue.
‘There are a number of areas of the capital where large scale development projects are currently taking place, many of which won’t be fully completed for a number of years. As demand continues to outstrip supply, these new neighbourhoods are expected to benefit and have the potential to outperform the wider market. However, the changing policy landscape could weigh on new supply in some areas,’ it concludes.