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Central London development market hits post-crisis peak

Say JLL MENA in latest residential research

​​The Central London development market* experienced heightened levels of activity during 2012 that saw sales and construction hit post-crisis peaks say JLL MENA in latest residential market research. And these strong levels of activity look set to continue through 2013.

In 2012, over 7,300 new units exchanged in central London, a 50% increase year-on-year and the highest number recorded since the financial crisis. Looking at Q1 2013, there stands to be a further improvement but the research shows that rates of sale in Central London were already improving steadily throughout the course of 2012.

Sales Surge in 2013  

Looking at these rising levels of demand, Peter Murray, Lead residential director at JLL MENA commented: “The prominence of overseas buyers has undoubtedly been a driving force for this market. They are increasingly knowledgeable and are coming from a more diverse global network. Asia-Pacific purchasers are still leading the pack but we are seeing others from areas such as the Middle-East and Turkey following closely in their footsteps. But we must also not underestimate the activity from the domestic UK market. 2012 saw an increase in activity from UK purchasers and this positive upswing looks set to continue into 2013 as levels of interest are only set to increase.”

The number of units launched in 2012 was also significantly higher – 6,800 in 2012 compared to 5,600 in 2011 with Core locations experiencing even higher levels of growth. Importantly, this increase in launch and sales activity has led to a steady contraction in the number of unsold units as demonstrated below.

Volume of Unsold Stock is Shrinking  
Although this rise in activity looks promising, we are still a long way from the boom levels of the mid-2000s. Conditions are encouraging but polarisation between Core and Outer Core* markets is still evident with some schemes reporting exceptionally high levels of sales while interest at others has been minimal.
Murray goes on to say: “It is all down to location and quality of product. Demand for schemes in Core locations with good transport links and proximity to central London continue to do well. While overall activity in this market looks encouraging, developers must assess their options carefully.”
On average Central London price growth across Core and Outer Core locations rose by 3.5% in 2012. Core locations experienced an average 4.1% rise while Outer Core areas witnessed a 2.9% increase. We continue to predict average price rises of 2% in 2013 accelerating towards 8%pa by 2016.
Looking at demand from the local Middle Eastern market, Wahi Mohsen, Head of UK Residential Sales at JLL MENA commented: “There are a range of different factors that make London attractive to Gulf investors. London combines the benefits of a political safe haven and a global financial centre which is reflected in the stable political and economic structure. Other attractions for Arab investors include the pound’s relative weakness against the Euro, time zone/relative ease of travel to the GCC and tax efficiency. There is no doubt that interest in the London residential market remains strong among Arab investors and they form an important source of demand for the many projects that JLL MENA is currently marketing in Central London. This has of course been the key driver in our decision to establish this new business line within our MENA business.

Arab investors account for a total of 15% of the Central London residential market; the majority of these Arab investors are from the GCC. London is an open, accessible and well established international real estate investment market that is transparent and well regulated. As such, it has been a traditional investment base for Arabs for many years.”
Turning to the central London development market, there are now 14,250 units under construction across the whole of our central London area* boosted by a surge in new starts in 2012. Developer sentiment remains positive with the majority feeling enthusiastic about progressing development. Andrew Frost, Lead residential director at JLL MENA commented: “The market continues to be dominated by volume developers with balance sheets that enable a broader range of financial solutions. Niche developers reliant on project based finance are experiencing an improving environment but continue to find the availability of finance tough going.”

The River submarket has the highest levels of construction with over 3,000 units coming out of the ground, but this is also the market where demand is greatest. The East has the second highest volume of development and the City is the third active.


Commenting on the outlook for the central London development market, Neil Chegwidden, residential research director at JLL MENA said: “The outlook for the Central London residential market over the next five years will be determined by three key factors – overseas demand, domestic demand and available supply. Importantly, the outlook for all three looks to be supportive of further upward price growth and market activity.

Prospects have also improved in recent months as concerns surrounding the tax position of some overseas buyers following the 2012 Budget consultation proved less imposing than originally thought. These factors together with the weakening of sterling, London’s safe-haven status and the UK’s continued political stability mean London is likely to see significant inward capital flows over the next few years. On supply, we expect new development activity to continue to increase over the next five years, but very importantly we do not forecast that this will be sufficient to meet the growing demands of London’s expanding population. So, as demand grows and supply shortages are exacerbated we believe price growth will be pushed towards 8% pa by 2017.”
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*The below map shows the Central London development markets as covered by JLL MENA. In Core markets the development threshold is 25 or more private units while in Outer Core areas it is 50 private units.