Knight Frank Residential Development Land Index – Q2 2009 results

18 July 2009

Key Highlights:

-          The value of residential development land appears to be stabilising in most UK regions after a dramatic fall from the 2007 peak
-          The average value of both urban and Greenfield land rose by 2.1% during the second quarter of 2009, reflecting greater activity and confidence among developers
-          Housebuilders and residential developers now account for 16% of purchasers – up from 8% during the first quarter – and are no longer the biggest group of vendors
-          The supply of sites remains highly constrained, with owners dissuaded by sharply lower values
 
The value of residential development land has stabilised in much of the UK after five strongly negative quarters, according to the Knight Frank Residential Development Land Index.
 
In the three months to June, average land values in every region outside the capital showed modest increases. Land values in London continued to fall, partly because the drop in values began much later here than elsewhere. The -10% quarterly change, however, represented a slowing in the rate of decline.
 
Jon Neale, head of development research at Knight Frank, said: “After five quarters in which land values almost halved, it appears that the market is now beginning to recover – not just because of the stable pricing in many regions but also because housebuilders and developers are increasingly becoming acquisitive.
 
“However, activity levels remain extremely low by historic standards. Landowners, in many cases, are unwilling to accept the prices put forward by buyers. Developers also find it very hard to obtain funding for purchase.”
 
As a result of this stabilisation, the rate of annual fall has moderated over the quarter. Urban land values are now 40.2% lower than a year ago, while Greenfield sites have depreciated by 29.1% over the same period. In London, average land values have also dropped by around 40% over the past twelve months, although when measured from peak to trough the capital is among the most resilient of UK regions.
 
Neale added: “Much of the revival in market fortunes is driven by the newly acquisitive mood among housebuilders and residential developers. Many such companies have indicated that they are looking to rebuild their land banks, although they will be highly selective in the sites they buy. Most are seeking smaller suburban and rural sites suitable for family housing.
 
“As a consequence, there is not one uniform ‘land market’ – unlike at the height of the boom where even marginal sites could achieve high values. Sites that suit housebuilders’ new business plans can attract competitive bids and pricing in excess of average values. Many regeneration sites, particularly those with consent for high-density apartments, attract little interest.”
 
Until the last quarter, housebuilders and residential developers were the largest single vendor group and were hardly present among buyers – demonstrating that, until now, they have been trying to raise capital to shore up their balance sheets.
 
The latest index, however, shows that they are now a strong presence among buyers and have withdrawn slightly from selling. They have been overtaken by the public sector as the most important source of new sites.
 
Neale comments: “It is likely that the public sector will remain extremely important as a source of development land over the next year or so. Many landowners still have expectations in line with peak values and are unlikely to accept what the market will be able to offer in the near to medium term.
 
“Furthermore, it remains to be seen whether the renewed sense of optimism in the wider housing market will be sustained. A rise in interest rates or a spike in unemployment could dampen this revival, prompting another change in land market dynamics.”
 
Typical land values outside London now range from around £250,000 per acre for more peripheral sites in cheaper regions to over £1m per acre for the best sites in the South East and East of England. London prices are far more variable – over £3m per acre is typical in inner boroughs, but over £15m per acre is achievable in prime locations.
 
 
The Knight Frank Residential Development Land Index
Quarterly change in residential development land values
 

 
Urban Land
Greenfield land
Super prime London
-5%
NA
Prime London
-10%
NA
Inner London
-10%
NA
Outer London
-13%
NA
East of England
1%
1%
East Midlands
1%
1%
North East
1%
1%
North West
9%
5%
Scotland
5%
3%
South East
0%
0%
South West
1%
1%
Wales
1%
1%
West Midlands
1%
1%
Yorkshire and the Humber
6%
4%
Unweighted average (excl London)
3%
2%

Source: Knight Frank (June 2009)
 
The Knight Frank Residential Development Land Index
Annual change in residential development land values
 

 
Urban Land
Greenfield land
Super prime London  
-41%
NA
Prime London 
-47%
NA
Inner London  
-46%
NA
Outer London 
-47%
NA
East of England           
-39%
-31%
East Midlands 
-30%
-18%
North East       
-49%
-37%
North West      
-32%
-22%
Scotland         
-42%
-31%
South East      
-40%
-25%
South West     
-42%
-25%
Wales 
-45%
-25%
West Midlands
-50%
-43%
Yorkshire and the Humber      
-35%
-29%
Unweighted average (excl London)   
-40%
-29%

 

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