The development land market in the UK returned to more normal conditions at the end of 2016 recovering from the market caution immediately after the vote in June to leave the European Union, according to new research.
However, land buyers are being more selective, seeking more due diligence and negotiating deferred payments in many cases, resulting in land sales taking longer to complete, says the report from real estate firm Savills.
It reveals that urban land values have increased more strongly than values for greenfield land over the last quarter of the year, picking up from the slow or negative growth in the third quarter of 2016 directly following the Brexit vote.
On a UK wide basis urban development land values increased by 1.2% in the last quarter of 2016 bringing annual growth to 3.6% while greenfield development land values increased by 0.5% with annual growth of 1.7%.
This has been led by growth in regional cities including Birmingham, Manchester and Glasgow and the strongest demand is for oven-ready sites in established residential areas or close to good infrastructure.
In Manchester it is suburban brownfield sites just outside the very centre of the city that are drawing strong demand as developers look beyond the city apartment market for alternative opportunities and in Glasgow a lack of supply of sites in prime locations continues to drive land values in these markets.
The report explains that generally there is less demand for sites in more rural or economically weaker markets and for those needing remediation.
It is the big house builders have been more active in their land buying activity after pausing in the summer and early autumn, albeit they are able to be more selective about sites and the report suggests that there is sufficient land availability to replenish their land pipelines.
In areas where there is less intense competition for land, more land owners are engaging with joint venture agreements with developers, to generate higher land value over a longer period.
Overall, since the summer the land market has picked up again in many parts of the UK. Sentiment and the number of bids per site has improved, and land values have returned to growth. However, there remains variation across the country and activity in the land market is concentrated in stronger markets.
‘We expect continued high demand for low risk sites close to established markets or good transport links with little or no remediation required. Urban and suburban sites in regional cities will continue to see interest from those looking to expand or move their activities to areas with greater chance of growth,’ the report says.
It points out that the availability of labour continues to be a notable factor constraining the expansion of the industry, although it has eased as an issue and several Government policies are set to bring more development land to the market.
This includes the announcement of 17 further garden towns and villages which have the potential to provide almost 200,000 new homes across the country and the announcement of 30 local authority partnerships set to be the first to build Starter Homes on brownfield sites, backed by the £1.2 billion Starter Homes Land Fund.