Residential Development Market

Q1 2019 has seen a cautious start to the year. As always there are those that have just finished their year end in line with the calendar year and are very much contemplating the year ahead and the potential challenges and opportunities, this year arguably more than ever. While others are waiting for some clarity around Brexit, we have seen a number of transactions, that had previously slowed down, speed up and complete ahead of financial year end. This reflects the desire of many to get on with business irrelevant of the unknown Brexit outcome. This is consistent with much of the past two years where developers are endeavouring to continue to build and keep their construction and sales teams busy.

The sheer extent of the uncertainty and delay around Brexit has impacted large parts of the market, however, this indecision has created opportunity for others with strong unconditional buyers waiting in the wings. With an extension to Help to Buy until 2023 and the hope that we are teetering on the edge of some degree of clarity on Brexit, one way or another, spending the next couple of years getting planning and building means that your end sales are likely to be coming to the market in a much better environment.

With this in mind there appears to be plenty of money in the market, keen to invest and there are a number of new lenders that are eager to support the smaller developer. While the larger developers are still chasing scale, due to reducing the number of planning applications they need to submit across their business, there is increasing financial support for the sub 100 unit schemes. Whilst the depth of the end purchaser market is not as strong as recent years, it is still possible to obtain premium land values for the right consented product. This has been evidenced through our two recent sales in Surbiton, one with consent for 49 units and one with consent for 41 units as well as our site in Edmonton with consent for 68 units.

Many developers in London and the South East are viewing 2019/20 much like they did 2009/10, as an environment to help build a pipeline for years to come. This is particularly relevant on large scale unconditional opportunities where affordable housing and planning challenges show little sign of dampening demand.

Developers in London and the South East are viewing 2019/20 much like they did 2009/10, as an environment to help build a pipeline for years to come

In the regions we are finding prime sites are still receiving significant attention from developers and the market remains extremely buoyant and competitive, we have seen this through the recent sale of Maxi’s Chinese in Leeds for a record value per acre and Oughtbridge Valley a scheme of 320 dwellings in Sheffield with numerous offers secured from national house builders.

Interestingly the PLC house builders are coming under increasing competition from Housing Associations and Build to Rent developers in the traditional residential housing market, who are very competitive on land value due to different requirements on profit, borrowing and return on capital. This is creating a more competitive and diverse market.

The market for peripheral, low value sites is challenging, likely the result of a combination of things, but predominately the risk profile of small and medium size developers who are essentially operating ‘hand to mouth’ with regards to land purchases so not to leave themselves too exposed in these uncertain times. The purchase of said sites is further frustrated by delays within planning as the majority of planning authorities remain hugely under resourced.

However in the middle of every difficulty lies opportunity and it is clear that certain parties have made a decision to avoid any further procrastination over Brexit and get on with business and while this may suggest a small light of optimism in the market, only time will tell for these early movers.