Pressure mounts but South East land values still increase – Savills
Land values in the South East are still increasing despite growing pressure, due in part to sustained competition for sites.
This is according to property advisory Savills, which has reported a 1.8 per cent increase in the value of greenfield sites in the second quarter of 2022, while urban sites have risen by 4.2 per cent.
This brings annual growth in these areas up to 8.4 per cent and 11 per cent respectively, the region’s strongest growth since 2014.
The increases result from competition for sites, limited supply, high house prices and heavy demand for homes. Pressure is building on values, however, 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.
Ed Keeling, joint head of Savills South Central Development team said: “Value growth of urban land in, in particular, has been remarkably strong over the last year, with the value uplift in the South East in the last three months being double the UK average.
“This discrepancy is likely to be down to the impact of Crossrail now finally becoming a reality. The Thames Valley is ideally located to catch this latest wave of demand and with very little land coming through the pipeline for residential development, competition is expected to remain strong.”
Even with the shortage of available land, Savills South Central Development team completed or advised on £118 million worth of land sales during the first half of 2022.
Notable deals included a significant Reading town centre scheme with planning for 110 apartments, 210 dwellings near Bracknell and 75 dwellings in West Berkshire.
Read more - Savills report 11% revenue increase
Tim Watson, joint head of Savills South Central Development team, 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. With viability stacking up for residential schemes, land values for higher value alternative uses with less onerous planning requirements such as life sciences, industrial and logistics, are increasingly competing with residential land values.”
Lydia McLaren, Savills research analyst, said: “As a result, 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.”
Despite its success, Savills is predicting a deceleration in the coming years as house price growth slows and build costs continue to rise.
Ed Keeling said: "We think that the rate at which land values will increase over the coming years will start to slow. This is due to the anticipated slowdown in house price growth, coupled with downward pressure from build cost inflation, from the increased costs of construction materials – up by 23 per cent in the last 12 months, according to BCIS – as well as new building regulations, such as Part L and F.
“However, all this is against a strong platform of demand and limited supply. Certainly, for the remainder of this year, competition for land will continue to support growth in land values 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, such as housing associations and SMEs, to replenish their pipeline of sites, having been squeezed out of the market of late. The current political uncertainty may cause some short-term disruption over the coming months but this will give way quite quickly once a new prime minister is announced.”
Read more - Savills open new Reading office