Savills Land Report - Feb 2013


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Savills Land Report - Feb 2013

  1. 1. 01Market in MinutesUK ResidentialDevelopment Land February 2013Savills World ResearchUK ResidentialSUMMARYIndustry sentiment is positive moving into 2013, despite uncertain economic backdrop■ Residential land pricesoutperformed house prices in 2012.Average UK greenfield values wereup 3.6%, urban values grew by 1.7%,set against house price falls of -1.1%.■ Transaction levels and marketactivity will continue to be muchmore important drivers of developerdemand for land than house pricegrowth and absolute house prices.■ Developers and housebuilderscontinue to target their activity inhigher value housing markets in eachpart of the country, and are finding ashortage of viable, permissionedland in these locations.■ The London land market remainsbuoyant, with overseas equity fuellingdemand for central London sites;71% of London deals took placewithin zones 1 and 2 last year.■ Recapitalised housebuilders,reporting steadily increasingprofits and reduced debt, areincreasingly using up-front paymentas a means to secure land inLondon, the south east and otherhigh value housing markets.“Recapitalised housebuilders,reporting steadily increasingprofits and reduced debt, areincreasingly using their balancesheets to fund land purchases”Paul Tostevin, Savills Research
  2. 2. February 02Market in Minutes | UK Residential Development LandGreenfield outperformsDuring 2012, greenfield values wereup 3.6%, while urban values grew by1.7%. Both outperformed nationalhouse price growth, which fell by-1.1% (see Graph 1).These small value increases reflecta general shortage of suitable,permissioned land in the market,despite early signs that the NationalPlanning Policy Framework is leadingto more consents, including those fromappeal decisions.At the same time, demand hasincreased as housebuilders anddevelopers have worked through theirinventory of sites brought prior tothe downturn, and are now activelyseeking to bolster their land pipeline.The problem is particularly acute inthe West Midlands and South Wales,where very specific market conditionshave buoyed land values. An acuteshortage of permissioned land, theresult of hold ups in local planningsystems, has pushed up values asbuyers have bid for a limited pool ofsites. Savills Western region GreenfieldIndex recorded growth of 3.1% overthe last six months of 2012 alone.Broadly, the southern regions stilloutperform those in the north interms of land value recovery, butthe full picture is more complexthan a straightforward regionalone. Housebuilders are targetingtheir activity, so demand is strongfor consented land in high-valueregional towns and cities across thewhole country. While locations in theSouth East still dominate the top 10performing locations for land pricegrowth in 2012 (see Table 1), locationsin the West Midlands, South West,Wales and Scotland are also present.Cash buyers have edgeRecapitalised housebuilders, reportingsteadily increasing profits and reduceddebt, are increasingly using theirbalance sheets to fund land purchases.This has become particularly importantin stronger housing markets withlimited stocks of permissioned land,where competition is greatest. In thesemarkets, cash buyers have the edge toseal the deal. In central London, nearlyall transactions are taking place on thisbasis.By contrast, funding and risk issuesstill remain a major barrier to bringingforward large, complex and marginalsites. This has created the necessityof a ‘build now, pay later’ landdevelopment model. Some landownerswill increasingly need to be co-investors or joint-venture rather thanoutright, up-front sellers. This appliesto both the public and private sector,but some of the public sector landinitiatives recently announced have thepotential to start bridging the deliveryrisk gap.London land resilientBuoyed by overseas equity and astrong domestic economy, demandfor London residential property is high,and the London land market remainsresilient. Land values in some centralLondon locations in are now inGRAPH 1Annual Land and House Price GrowthTABLE 1Top performing towns in 2012 bygreenfield land price growth(outside of London)Graph source: Savills Research, NationwideTable source: Savills Research2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Annualpricegrowth30%20%10%0%-10%-20%-30%-40%-50%-60%n Greenfield n Urban House pricesRank Town Region1 Sevenoaks South East2 Maidstone South East3 Crawley South East4 Exeter South West5 Solihull West Midlands6 Canterbury South East7 Swansea Wales8 Haywards Heath South East9 Leamington Spa West Midlands10 Edinburgh Scotland“The London land marketremains buoyant, with overseasequity fuelling demand forcentral London sites”Jim Ward, Savills Research
  3. 3. February 03Market in Minutes | UK Residential Development LandOUTLOOKIndustry momentum builds■ Industry sentiment has been positive movinginto 2013, despite the backdrop of relativelysubdued economic conditions and prospects forminimal house price inflation in 2013. The majorhousebuilders are reporting strong profit growth,while the Home Builders Federation surveyreported an increase in net reservations betweenNovember and December, a first in its 21-yearhistory. Housebuilder confidence is high.■ Mortgage lending is showing some signs ofeasing, boosted by a rise in lending to first timebuyers, up 13% in the year to November 2012,according to CML, attributed in part to the Fundingfor Lending scheme.■ Our own forecasts are that average UK houseprices will grow by just 0.5% in 2013 and remainlow for the next five years. Housing transactionlevels are also likely to remain low, rebuilding onlyslowly. Government interventions such as FirstBuyand NewBuy are set to boost market take up.Activity will be healthiest in higher value towns andcities, and in the upper price tiers of the housingmarket, albeit that, in all markets, good sites withlimited competition will always attract interest.■ There is growing institutional investor demandfor larger scale development opportunities in thebuild to let sector, with new players entering themarket. The government’s Build to Rent Fund anddebt guarantees will help to bring forward moresites including the larger sites where higher ratesof market absorption can increase financial viabilityand accelerate placemaking.Savills Research teamPlease contact us for further informationJim WardDirector020 7409 8841jward@savills.comPaul TostevinAssociate020 7016 3883ptostevin@savills.comSavills plcSavills is a leading global real estate service provider listed on the London Stock Exchange. Thecompany established in 1855, has a rich heritage with unrivalled growth. It is a company thatleads rather than follows, and now has over 200 offices and associates throughout the Americas,Europe, Asia Pacific, Africa and the Middle East.This report is for general informative purposes only. It may not bepublished, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract,prospectus, agreement or other document without prior consent. Whilst every effort has beenmade to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequentialloss arising from its use. The content is strictly copyright and reproduction of the whole or part of itin any form is prohibited without written permission from Savills Research.excess of their 2008 peak. Trading isbrisk. There were over 220 residentialland transactions in London in the 12months to October 2012, accordingto Molior. In total, 71% of thesedeals were within London transportzones 1 and 2.This reflects investor demand forflats in central London, with recentschemes achieving high levels ofmarket absorption aided by strongsales at overseas launch, forwardfunding the development process.MAP 1Land transactions in London, 12 months to Oct 2012Map source: Molior / Savills ResearchSome 21.4% of land transactionstook place in Westminster, the heartof prime central London and leadrecipient of global wealth. AfterWestminster, the boroughs thatsaw the greatest volume of landtransactions were Camden (8.5%),Southwark (7.6%), Wandsworth(7.1%) and Lambeth (6.7%). On theedge of prime London, land in theseboroughs has the greatest potential forvalue uplift through placemaking andinfrastructure improvements. nSite sale pricen £50m and aboven £15m to £50mn £10m to £15mn £5m to £10mn £2m to £5mn £1m to £2mn Up to £1m