More than 20,000 prime homes could be delivered in London over the next decade with a combined sale value of more than £50bn.
According to EC Harris’s third annual London prime residential pipeline report, 150 sites have been identified spanning traditional core prime central London as well as emerging edge of core prime areas in the wider central London market, such as the South Bank, Bayswater and Paddington.
More than 4,600 additional homes have entered the pipeline this year in the value band between £1,250 and £1,650 per sq ft. The overall pipeline for super prime schemes with values of more than £1,650 per sq ft appears fairly static, reflecting a more finite supply of sites in the traditional core prime areas.
The potential peak of development activity is predicted to be in 2017.
EC Harris believes the real risk for developers is of an increasingly crowded market, with traditional prime residential specialists now competing with volume housebuilders, commercial mixed-use developers and, increasingly, foreign investors. There are clear dangers for developers where increasing cost uplift pressures exist with a much more indeterminate medium to long-term sales market, it warned.
The report also highlights other issues for developers and investors, including:
Mark Farmer, head of residential at EC Harris, said: “It is no real surprise that our pipeline again shows significant growth in the year. What is perhaps more interesting is the shape of the market with a still greatly expanding supply at the lower end of the prime range but a fairly static supply in the core super prime areas of London where site opportunities are a lot scarcer. The increasing challenge for investors and developers, is to avoid over-paying for sites at a critical time when construction costs are increasing, the sales market is much more competitive and there is increasing scepticism about the real sustainability of rates of prime sales value growth seen in recent times.
“What has been a window of opportunity for developers over the last few years with reducing build costs and increasing sales values is rapidly closing and becoming a much more challenging environment. Any softening of the market will be felt most by those developments which have aspirational values targets not underpinned by core location and quality fundamentals.”