Development land prices dip in Q2

August 10, 2016 / Isla MacFarlane
Development land prices dip in Q2

Pricing for residential development land slipped between April and the end of June, according to a recent report from Frank Knight.

While this quarterly reduction extended annual declines in pricing for prime central London and greenfield development land, urban brownfield land is still recording strong annual growth.

Greenfield development land prices declined by 2.3% between April and the end of June taking the annual fall to 3.8%.

In prime central London, average residential development land prices fell for the third consecutive quarter, dropping by 6.9%. Average values are down 9.4% on an annual basis, but this follows several years of very strong growth, so the index has returned to 2014 levels.

Developers reported that activity continued in the run-up to the EU Referendum vote, with house purchase rates remaining steady, especially in the regional markets. The fundamentals of the between supply and demand and ultra-low mortgage rates, remain unchanged.

However, some housebuilders and developers are increasing their margins and hurdle rates on greenfield and prime central London land deals. This is in order to allow for increased uncertainty over the future economic landscape as the UK negotiates its way to a new position within the Europe. This is feeding into land prices.

In terms of greenfield sites, smaller plots for around 150-200 units close to urban areas and transport links are still the most in demand, with higher levels of competition for such Construction costs, which have risen notably over the last two years, are also a factor in land prices, especially in the central London market. Here the cost of construction is altering the viability of some sites and in some cases this has led to a trimming of land costs.

Urban land values are up by more than 9%. There is still strong demand for city centre sites in key regional locations, and in outer London boroughs, although the dynamics of each market are closely aligned with the demand and supply fundamentals at play in the local area.

Construction costs, which have risen notably over the last two years, are also a factor in land prices, especially in the central London market. Here the cost of construction is altering the viability of some sites and in some cases this has led to a trimming of land costs.

Urban land values are up by more than 9%. There is still strong demand for city centre sites in key regional locations, and in outer London boroughs, although the dynamics of each market are closely aligned with the demand and supply fundamentals at play in the local area.

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