Housebuilders looking to secure a five year pipeline are pushing up the value of residential development land at a rate not seen since 2010, according to data from international real estate adviser, Savills.
Price growth continues to be led by the South East, but sentiment is improving across the UK and there are now early signs of life in key urban markets such as Manchester and Birmingham that have remained dormant since 2008.
Greenfield development land prices grew by 3.0 per cent in the final quarter of 2013, the highest rate of quarterly growth since 2010, according to the Savills residential development land index, to finish the year up 6.5 per cent, with urban land values growing by 6.7 per cent over the same period.
Improved confidence in the continued return towards functioning markets has also pushed up the value of large sites, with 30-plus acre permissioned sites outperforming smaller one and five acre sites last year. The value of 30 acre permissioned sites increased by 7.5% in 2013 (up 3.7% in Q4 alone), compared to 5.8% and 6.4% for one and five acre sites, respectively. Larger permissioned sites in better markets (with capacity for up to 200 units) have been targeted by housebuilders and developers looking to replenish their supply pipeline, in order to continue building out at the higher rates that are now being achieved.
Strategic land is also back in play, as investors, developers and financiers commit to the UK market recovery most notably in the stronger markets in which it is possible to sell quickly enough to generate a competitive return on capital. Many such sites, stalled in the downturn, are entering a new phase of activity, with plans re-evaluated for the new market era.
Some three-quarters (76%) of the 90 locations surveyed reported positive sentiment in the final quarter of 2013, compared to 69 per cent in the preceding three months. More significantly, there was a sharp increase in the number of locations recording price rises on closed deals, 68 per cent of greenfield locations reporting a value uplift compared to just 31 per cent in the third quarter.
“Improved confidence in the housing market is playing out in the land markets, with value growth driven by a strong demand for land,” says Jim Ward, Savills director of residential research. “Acquisitive housebuilders are now channelling debt and equity into longer term sites to secure pipeline, in a clear acknowledgement that sales rates and therefore optimum build rates have bottomed out in all but the most challenged locations.
“This increased demand, in a market where supply remains constrained, means that land values are expected to continue their upwards trajectory. This accentuates the need for the volume of land coming through the reformed planning system to continue increasing at the rates we have seen during the last 18 months.”
Land price trends – the geography of recovery
Land price growth continues to be led by the south east of England, where greenfield values increased by 5.8% in Q4, 8.1% between June and December. Well located sites in markets such as Oxford and Sevenoaks have already exceeded former peak values, while commuter locations such as High Wycombe and Reading are fast approaching their former highs.
Help to Buy has been a catalyst for activity in lower value markets. Marked land price rises were recorded in Durham, Leeds and Sheffield (albeit off a low base) and there are signs of renewed market interest in some Birmingham and Manchester city centre sites although deals remain some way off.
In London, a strong mainstream market and a growing supply/demand imbalance means there is real copper-bottomed opportunity in the lower and mid-mainstream sector outside of zones 1 and 2, with new build sales values under £700 per square foot.
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