Savills World Research
UK Residential
Market in Minutes
UK Residential
Development Land
May 2015
SUMMARY
Slower land value growth in an increasingly polarised land market
■ UK greenfield and urban
development land values increased
by 0.5% and 1.6% respectively in
Q1 2015. Growth has been limited
by increasing construction costs
and fewer bids per site in some
parts of the UK.
■ London residential development
land values remained stable in
the six months to March 2015.
Sentiment remains strong but
construction costs and election
uncertainty have prevented London
land values from increasing.
■ Urban land values in Scotland
bounced back following the
referendum, increasing by 6.9% in
the last quarter.
■ Demand for land is more intense
in the South East; land values are
highest and have surpassed their
2007/08 peak in some places
including Oxford and Sevenoaks.
■ In the medium term residential
development land values in high
demand areas are likely to rise
unless significantly more supply
is brought to the market.
“The development land market
is becoming increasingly
polarised in terms of both
location and size of site”
Jim Ward, Savills Research
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01
Market in Minutes | UK Residential Development Land
May 2015
Relatively stable values
FIGURE 1
UK development land values
140
120
100
80
60
40
20
Mar 15
Mar 14
Sep 14
Sep 13
Mar 13
Mar 12
Sep 12
Sep 11
Mar 11
Mar 10
Sep 10
Mar 09
Sep 09
Sep 08
Mar 08
Mar 07
Sep 07
Mar 06
Sep 06
Mar 05
0
Sep 05
Residential Development Land Index (100=2007 peak)
n UK Greenfield n UK Urban n London
Source: Savills Research
FIGURE 2
Change in London development land values
Development land values across
the UK have remained stable or
increased only slightly in the last three
to six months. Greenfield land values
increased by 0.5% in Q1 2015 (0.6%
in Q4 2014) bringing annual growth
to 5.8%. Growth in urban land values,
replicating their previous quarter
performance, increased by 1.6% in
Q1 2015 with annual growth at 9.0%
exceeding that of greenfield land.
Residential development land values
in London remained stable over the
six months to March 2015 following
a period of strong growth.
The UK as a whole has experienced
increased construction costs and
the scarcity of bricklayers and joiners
has increasingly become a problem.
In some parts of the UK there have
been fewer bids per site due to the
selectivity of housebuilders. These
factors have prevented land values
from rising significantly.
n Hotel n Residential n Office
However, the picture across the
country is varied and is becoming
relatively polarised between higher
value markets of stronger demand,
generally in the South East, and the
rest of the country.
Six month change in development land value
40%
30%
20%
10%
0%
Strong sentiment
for London land
-10%
Residential development land values in
London remained stable over the last
six months after very strong increases
in values in 2013 and 2014 (25.8%
growth in the year to March 2014).
-20%
-30%
-40%
Mar 15
Sep 14
Mar 14
Sep 13
Mar 13
Sep 12
Mar 12
Sep 11
Mar 11
Sep 10
Mar 10
Sep 09
Mar 09
Sep 08
Mar 08
Sep 07
Mar 07
-50%
Source: Savills Research
FIGURE 3
Change in greenfield development land values
in selected markets
Oxford
Sentiment for London residential land
remains strong, particularly in areas
with good transport links or planned
infrastructure improvement and sites
continue to attract a high number of
bids. However, increasing construction
costs, the introduction of CIL in some
boroughs and election uncertainty
have kept residential development land
values from increasing.
Sevenoaks
Cambridge
Reading/Bracknell
BELOW PEAK
UK
ABOVE PEAK
Milton Keynes
Norwich
Telford
Lincoln
-60%
-40%
-20%
0%
Land price versus '07/'08 peak
Source: Savills Research
20%
40%
The growth in hotel and office
development land values in London
has lagged behind residential since the
start of the recovery in 2009. However,
in the last six months values for hotel
and office land continue to grow while
land values for residential stand still.
Development land values for hotels
and offices in the capital increased by
3.8% and 4.4% over the six months
to March 2015 compared to 0% for
residential development land.
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02
Market in Minutes | UK Residential Development Land
Scottish urban land
catch up
Scotland stands out as experiencing
strong increases in urban
development land values which
rose by 6.9% in the quarter. This
follows the bounce-back in greenfield
land values last quarter after the
referendum in September 2014. Both
urban and greenfield land values
had relatively low growth leading up
to that point. Urban land values in
Edinburgh and Glasgow have been at
the forefront of this growth and now
stand at double that of their 2008/09
lows, approximately three quarters of
their 2007/08 peak.
High value markets
The South East (and Cambridge) has
the highest value land market where
sites, according to our survey of
agents, receive the greatest number
of bids. Development land values
in this area are the highest in the
country, in many cases above their
2007/08 peak values.
Whilst many of the major
housebuilders already have a strong
0%
May 2015
presence in the South East, others
such as Redrow, Countryside and
Cala plan to expand their operations
in this higher value region.
In places where land availability is
very constrained and there is strong
competition for the sites that do come
to the market, values are pushed up.
Oxford and Sevenoaks, high demand
locations with strong links to London
where growth is constrained by Green
Belt land and development land prices
have exceeded their former peak.
In high value markets where land
has been brought forward, values
have increased to a lesser extent.
Cambridge is a highly sought after
commuter location with a strong
local economy, which by comparison
has had more land brought forward
for development, some of which
is released from the Green Belt.
Land values are currently just below
their former peak. The increase
in affordable home provision and
the larger volume of supply of
development land has prevented land
values from being pushed still higher.
1.6%
London residential land
price growth since Q3 2014
UK urban land price
growth in Q1 2015
0.5%
6.9%
UK greenfield land
price growth in Q1 2015
Scotland urban land
price growth in Q1 2015
Beyond the South East, especially
in secondary locations, there has
been subdued competition from
housebuilders. Fewer bids per site,
creating a lower level of competition,
has meant land prices remain well
below their former peak.
The size of site matters
Sites of c.100 units with planning
permission remain popular with most
regional and large housebuilders.
However, there is increasingly more
demand for stand-alone sites of this
type than for one of several parcels
on a multi outlet site.
Whilst a site or parcel of c.100 units
can be served by a single outlet, the
advantage of the stand-alone site is
the lack of competition from other
housebuilders with a similar product.
In contrast, a development on a
multi outlet site will be competition
with the other housebuilders on the
wider development. If the type and
specification of homes on these
different parcels is similar, there will
be direct competition and house prices
and sales rates will be lower as a result.
Future for land prices
As housebuilders continue at their
current rate of building or expand their
output, demand for development land
will continue. However, this demand
is more polarised in the current cycle
than in previous times, with a stronger
focus on the South East. Land values
are likely to increase in high demand
markets where there is limited supply
of development land. In order to
prevent land values in the South
East increasing further in the future,
more development land needs to be
brought forward. n
Savills Research team
Please contact us for further information
Savills plc
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Jim Ward
020 7409 8841
[email protected]
Susan Emmett
020 3107 5460
[email protected]
Twitter @saemmett
Lucy Greenwood
020 7016 3882
[email protected]
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