Land values in the west continue to rise despite mounting pressures - Savills

Land values across the western region are still increasing despite mounting pressures, according to property advisor Savills.

The land market remains cautiously positive as demand continues to significantly outstrip supply maintaining growth in regional land values.

In the second quarter of 2022, greenfield land values in the west increased by 2.2 per cent and urban land remained stable. This brings annual growth to 12.4 per cent and six per cent respectively. Greenfield land has seen the greatest gains, the highest since 2010.

Competition for sites, limited supply, high house prices and the sustained high demand for homes all support this growth in land values, says Ben Taylor from Savills development team in Bristol.

Discussing the shape of the market, he said: "Major housebuilders are still proving to be aggressive and are actively seeking both immediate and strategic land to build up pipelines to provide them with the security of land supply.

"They remain competitive due to their ability to squeeze margins and cash rich positions as well as gaining confidence from their strong sales rates and forward sales positions.

"Alternative uses are also becoming more competitive in some locations. Build-to-rent is becoming increasingly prevalent in some of our urban markets, particularly in Bristol, which is now in the top 10 UK cities for growth, with 3,070 units completed, under construction or in planning.

"With viability stacking up for residential schemes, land values for uses such as student accommodation, are increasingly competing with residential land values, while high existing use values in the industrial and office sectors are impacting supply of opportunities for repurposing."

Despite the shortage of land available, Savills development team in Bristol completed or advised on over £62 million worth of land sales during the first half of 2022.

The sales will pave the way for 2,130 new homes and student beds in and around Bristol and Bath. Notable deals included the sale of a 110 unit site at Highbridge, an 800 student bed scheme in Bristol and an unconditional disposal of a former school in Tewkesbury near Bracknell.

However, there are challenges ahead, cautions Savills. "While we expect the shortage of stock to support house price growth in the short term, over the next five years, affordability pressures are expected to bite and lead to a slowing of house price growth in the UK,’ said Lydia McLaren, Savills research analyst.

"The land market remains robust, particularly for the best sites. But there are signs of weakness in some parts of the market. In some cases, typically for complicated sites, parties have renegotiated deals or deals have fallen through, especially where build cost expectations have risen sharply.’

"We think that the rate at which land values will increase over the coming years will start to slow, continues Taylor, ‘This is due to increasing build cost inflation and environmental requirements, the end of Help to Buy, the prospects of slower house price growth and rising inflation.

"However, all this is against a strong platform of demand and limited supply. Certainly for the remainder of this year, we expect competition for land to support growth in land values – at least until cost pressures become more of a factor.

"Where supply and demand in the land market come back into balance, it will allow other players to replenish their pipeline of sites, having been squeezed out of the market of late."