City centre sites in the UK are seeing increased interest from developers, pushing up average urban land values by 1.8% over the last quarter, according to new research.
Land within Birmingham, Manchester and Glasgow is in high demand with values rising by 15% or more for urban sites over the last year, the study from international real estate firm Savills.
It points out that previously overlooked sites are now being considered as developers and investors seek opportunities for house price growth and Build to Rent, regeneration and infrastructure improvements are at the heart of the growth. Housing Associations are also buying more land.
Indeed, urban land values have increased more strongly than values for greenfield land over the last quarter once again. On a UK wide basis urban development land values increased by 1.8% in the first quarter of 2017, bringing annual growth to 4.4%, while greenfield development land values increased by 0.4% in Q1 2017, with annual growth of 1.3%.
The report explains that there is increasing competition for land in the higher value areas of the Midlands as developers expand their boundaries. Meanwhile, higher end house builders, such as Crest Nicholson and Berkeley Homes, have been seeking opportunities beyond the South East, where they traditionally focus their development activities. This comes as house price growth spreads further from the South East and values of £300 per square foot for new build homes can be achieved in more locations.
In London there is strong demand for land, with or without consent, especially in zones two to six where new home sales values will be under £1,000 per square foot. Increasing numbers are preferring schemes at less than £800 per square foot.
Competition for these sites is from all types of developers including from UK housebuilders to niche developers. Crucially, the report says, funders are comfortable to support developments below £1,000 per square foot and the Build to Rent sector is also targeting markets below this value.
Looking ahead, Savills points out that supply in the upper mainstream market between £700 and £1,000 per square foot in London is forecast to be greater than demand over the next five years but most demand is at prices below this.
The greatest scarcity of homes for both owner occupiers and renters is at prices below £450 per square foot. In outer London, in the current strengthening market, funding has become available to invest in remediating brownfield sites. At this part of the market, Help to Buy also provides additional support for new build sales.
Compared to the rest of the country, Help to Buy has been used relatively little in London since its introduction in April 2013, but there has been an increase in take up since the 40% equity loan was introduced in February 2016.
The scheme is commonly used in the outer, more affordable boroughs, supporting 19% of new home sales, recorded by the Land Registry, in outer London between April 2013 and December 2015. This has increased to 30% of new home sales since the 40% equity loan has been available between the second and fourth quarters of 2016.
The report also says that competition for land in zone one remains relatively low due to slower new build sales rates, higher taxes and uncertainty over the impact of Brexit. Fewer prime residential sites are being started, domestic developers have enough land to build out for the moment and they are cautious about buying more.
This has resulted in central London residential land values staying at the same level as six months ago with just 0.1% growth since September 2016, but there is still some interest from international purchasers for land. ‘Deals can be done where local developers partner with international investment and landowners are prepared to accept lower offers for land than they would have done a year ago,’ the report explains.
