Birmingham and Bristol stand out as land values stall

Birmingham and Bristol have emerged as standout hotspots in the UK land market, as values across the country stall following the EU Referendum.

As the market settles after the Brexit vote, cautious buyers are now setting the market pace and dictating the direction of residential development land values. The latest Savills land index shows that while Central London has seen more marked price falls, areas of strong demand, and therefore value growth, remain in outer London and key regional centres.

In outer London, where house price affordability is less stretched and markets less impacted by stamp duty, demand for land “remains strong” and values “more robust”, says Savills, particularly where new build sales values are between £450-850 per square foot. “Demand for Greenfield sites in commutable locations west and north of London including Milton Keynes, Newbury and Reading is also strong,” notes the report.

Further afield, demand is underpinned by investors who were previously focused on London. Bristol has seen housing delivery fail to keep up with city growth, which is now creating competition for sites, while Birmingham city centre is seeing higher land values supported by regeneration stimuli such as HS2 and demand for build to rent properties.

Most locations, though, have seen land values plateau, as transaction volumes have decreased. UK Greenfield land values, excluding London, fell marginally (down 0.4 per cent) in the third quarter of 2016, but remain 2 per cent up year-on-year. Urban land values are more robust from a lower base, up 4 per cent year-on-year.

The biggest falls have been seen in central London. Falling house prices have reduced residential land values by 8.9 per cent in the past six months, the largest drop since 2008/9, bringing year on year falls to 10.2 per cent. This exceeds falls seen for office development land, which fell 5.9 per cent in the last six months and 5.3 per cent year on year, reflecting the combined effect of stamp duty on high value homes and the impact of the Brexit vote on sentiment.

“The small shift in the UK wide index (excluding London) reflects price falls in a few locations including Kent, Cornwall and Scotland. In Kent, a county normally dominated by major housebuilders, corporate level caution has reduced competition for sites,” comments Savills. “In Cornwall and Scotland, while volumes have been maintained, higher margin requirements are reducing values.”

“Caution is a clear theme of the current land market and we now wait to see if this translates into lower volumes or values this autumn,” says Jim Ward, director Savills residential development research. “But in the long term, demand for homes will continue to rise, even if net migration is reduced significantly, and those housebuilders that have not been buying land will need to do so soon if they are to maintain volumes.

“For now, they are expected to continue to favour lower risk, smaller sites, with larger site acquisition focused on locations where house prices continue to rise. Sellers of other sites will need to factor buyer caution into their pricing.”