Tough, rather than disastrous, were the words used last year to describe future trading conditions. And this has proved to be pretty much the case. Take up may have fallen by 50% over 2003, but high levels of off-plan sales in previous years have provided developers with a sizeable buffer zone to cushion any future storm they may have to weather.
Take up and supply constraints are likely to prove the two vital factors which will help insulate many central London developers from any potential market downturn. Indeed it is interesting to note that there has always been less than 200 units of standing completed stock available for purchase at any one time.
Richard Donnell, head of FPDSavills residential research department, says: “A lack of land and heavy regulation from the planning system means that housing supply will remain tight across most of central London for the foreseeable future. This will support new build values, especially in the core residential areas.”
Dominic Grace, head of FPDSavills new Homes department, says: “A scarcity of good sites in prime locations is an undoubted factor behind some of the prices we've been seeing on some of our developments. Developments such as the Philimores in W8 and The Knightsbridge in SW1,ultra high quality schemes in ultra prime locations, are commanding prices in excess of £2,000 per square foot.
“Even taking into account that much of the committed future stock is located in riverside developments between Vauxhall and Putney, once these sites have been fully developed, there is little else in the pipeline to follow. The picture is similar at Docklands where most of the best sites have either now been developed or are under construction. It's this inelastic supply which is helping support prices.”
In spite of lower levels of take up, average asking prices for new build stock have remained pretty much the same. Today, the average £psf stands at £509, equating to an average asking price of £476,000.
Donnell, says: “We expect average £sqft values across central London to remain broadly unchanged over the year. The strongest growth is likely to be seen towards the East and South East (riverside sites in SE8, SE10, SE7 and southern parts of E16) areas of London as values nudge over the £400 psf barrier.
“However. one of the real challenges facing developers today, is adjusting to the shift in buyers from investors to owner-occupiers. As we enter a period of weaker capital growth and rising interest rates, so FPDSavills are predicting a fall off in the number of investors.”
Grace says: “Investors are always likely to remain key players in the development market, but we recognise that in the long term we are unlikely to see them entering the market on the same scale that we have in the past. As a consequence, we believe that developers should plan for a higher proportion of owner-occupier sales. The net result of which will be a longer sales process, and higher sales and marketing costs.
“Taking a short term view the outlook for the new build market in central London is relatively rosy. A continued lack of supply will help support values and prospects for 2004. However, looking further ahead the future looks a little less certain. Higher interest rates, slower house price growth and the sheer cost of buying in London, will begin to take its toll on not just new build but existing housing stock too.”