Development land values across the UK have changed very little in the last three months, new research reveals.
The latest research report from Savills plc, entitled ‘UK Residential Development Land’ shows that greenfield land values decreased by 0.1% in Q3 2015, in comparison to 0.9% growth in Q2, bringing annual growth to 1.9%.
Urban land values grew 0.2% in Q3 2015, a much slower rate than the 3.7% rise experienced in the previous quarter.
Exceeding both greenfield land and residential land in London, annual growth for urban development land stands at 7.2%.
“There has been little change in development land prices in the last quarter due to house builders having enough consented land for their needs in the short term and continued pressure on build costs,” the report states.
Residential development land values in London have not changed in the six months since March 2015, although sentiment is said to remain positive and sites continue to attract a high number of bids.
“Land outside central London has seen more attention as house builders and developers look for opportunities to seek better development margins and to provide homes in markets with greater depth of demand,”
Savills’ report continues.
Stronger growth was apparent in the value of development land being used for other purposes.
Land used for hotels increased by 2.2% and land for offices increased by 6.4% over the six months to Q3 2015, closing some of the gap with residential values.
The report attributes a relatively active office market, where there is demand for new and refurbished space from both occupiers and investors, as the reason behind the growth in this area.
“This is particularly true in the core central London office market as a result of rising demand and a lack of stock. However, we expect to see more developer interest in 2016 in edge of City locations,”
states the report.
Turning to the wider picture, Savills’ research reviews the factors contributing to the flattening of development land values, and the more neutral sentiment for greenfield land across the UK.
Firstly, many house builders have acquired enough consented land for their needs in the short term: the listed house builders have on average 5.3 years’ worth of land to build out at existing build rates before accounting for controlled growth in volume from these levels.
That said, the report highlights that location still matters and that demand continues to be strong for land in markets with links to large centres of employment, where there is a scarcity of sites.
Secondly, the report cites findings from the Home Builders Federation survey which reveal that the availability of labour continues to be a major constraint.
Thirdly, build costs have continued to rise (5.4% in the year to Q3 2015 according to the Building Cost Information Service) and lastly, recent policy announcements have led to uncertainty in the industry.
“Despite this, sentiment for urban land remains unchanged according to our survey of Savills agents (the balance of opinion stands at +59%). The positive sentiment and price growth for urban development land reflects an improving market recovering from a lower base which is a more positive environment for new policies designed to bring forward additional brownfield land,”
the report summarises.
With regards to tenures, development for alternative tenures is in greater demand in some areas, particularly in city locations.
Places such as Birmingham, Manchester and Leeds have witnessed greater demand from the private rented sector (PRS), while in places such as Cardiff and Coventry student housing has led demand.
Another sector which continues to grow is the retirement home market, which brings with it an associated demand for land.
McCarthy & Stone, for example, has acquired 22% more sites in the last financial year compared to the previous year and is on track to increase its output to 3,000 homes per year in the medium term, from 1,923 in the last year.
Savills’ overall conclusion is that sentiment for UK development land remains positive:
“We expect demand for development land in the best locations to be maintained especially as sentiment for urban land remains positive.
Elsewhere, house builders will continue to replenish their land banks as they continue to keep up their level of output.
The demand for development land in London is expected to continue.
The pressure for more homes will ensure house building continues although as house price growth slows land values are likely to remain stable.
Due to the high value of residential development land, development activity for office space is likely to be constrained in central London locations, though we expect to see increasing levels of interest for commercial developments in peripheral office locations alongside residential.”
16th November 2015