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Fall in land values in prime central London market halted in first quarter of 2017

Average land values in prime central London were unchanged in the first quarter of 2017, ending five consecutive quarters of prices declines, according to the latest research.

The report from real estate firm Knight Frank also shows that urban brownfield land prices continued to climb between January and March, although the annual rate of growth is slowing.

Overall, urban development land values rose by 2.9% between January and March taking the annual change to 3.9% but values in prime central London are down 10.1% year on year while greenfield development land prices in England are down 1.2% on the year, although there was a 1.4% increase in average values in the first quarter.

According to Grainne Gilmore, head of UK residential research at Knight Frank, the divergence between the performance of greenfield and urban land markets across England has become less pronounced in recent months.

‘However, the markets remain relatively distinct, with different drivers. Urban residential land values, based on sites across Birmingham, Manchester, Leeds, Bristol and outer London, continue to rise, boosted by the demand for housing in these cities, which, in many cases, have been historically undersupplied,’ she said.

She pointed out that while urban land values have risen by a cumulative 21% since the beginning of 2015, the pace of annual growth in the urban land market has eased to 3.9%, down from 13.4% in the first quarter last year. The quarterly increase in prices was 2.9%, the strongest quarterly growth in a year, driven by outperformance in the Birmingham and Leeds markets.

Average values in the greenfield land market rose by 1.4% in the first three months of the year, the first quarterly growth since December 2014 albeit at levels which do not necessarily indicate a substantial change of direction in the market.

The data shows that, as with the urban land market, this growth is driven by particular areas of the country, especially the North and Midlands, where the appetite for land and limited supply is putting upward pressure on pricing.

More generally across the market, house builders remain well stocked in terms of land for their development pipelines and Gilmore explained that the uncertainty over the future of Help to Buy after 2020 is also influencing land buyers’ risk assessments as it may affect the development economics of any schemes which are developed on land purchased now.

‘Once there is more certainty about whether the scheme will continue or not, there is likely to be a rise in activity as pent-up demand comes back to the market,’ she added.

She also pointed out that another consideration also weighing on land values is the continued rise in construction costs, which are prompting a revision to development economics and appraisals in some cases.

In prime central London, average values have dipped by 14% since the third quarter of 2015 but Gilmore said that, much like the market in 2010, there are signs that some investors are looking to return to the market as they perceive more stable pricing in the sales market. ‘It will be interesting to note the relative performance of zone 1 compared to the rest of the capital over the next 12 months,’ she concluded.