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Development land drops by a third

Catherine Deshayes

Urban development land outside London has fallen by exactly a third over the past year, dropping by a whopping 15 per cent in the last quarter, according to the newly established Knight Frank Residential Development Land Index...

Brownfield sites have been the worst hit, but greenfield sites have fared little better, seeing falls of 30 per cent over the past year and 13 per cent over the past three months.

Amongst those hit hardest by the downturn are Yorkshire and Humberside, with both green and brownfield sites now worth around half of what they were worth a year ago.

The North-West is close behind, with drops of 41 per cent for brownfield and 36 per cent reported for Greenfield sites.

Prime London sites have only fallen by 10 per cent, and areas in outer London have fallen by 15 per cent.

Like primes central London properties that remained largely unaffected by the credit crunch, super-prime sites in the most sought after areas of the capital have barely been affected.

Whilst demand has dropped by as much as half, it continues to vastly outstrip supply, with some sites still capable of fetching the equivalent of £100 million per acre.

Jon Neale, Head of Development research at Knight Frank, said, "Over the past year, developers have put their land acquisition activities on hold, which has dramatically reduced demand for sites - by as much as 60 per cent in some parts of the country.

"Developers have found it almost impossible to access finance to buy land, while the pronounced slowdown in the sale of new homes has prompted them to reconsider the size of their future needs. Indeed, many are selling sites to raise cash and bolster their balance sheets, which has dramatically increased the supply of land on the market, further depressing values.

"There is evidence that many other vendors have not yet come to terms with the changed market conditions, and have unrealistic expectations of what price their site can achieve, particularly if it was bought at the top of the market," added Mr Neale.

At the moment, only well-located plots with planning permission attract interest, but much of the available land does not fit this description. As a result, any offers are likely to include deferred terms and options.

Mr Neale added, "The ongoing financial crisis and uncertainty over the prospects for British economy over the next year suggest that values will continue to fall.

"More supply will come to the market as developers reduce the size of their land banks, and it will be some time before they are ready to acquire again.

"Nevertheless, the presence of Housing Associations and, increasingly, speculators will help to cushion the market against the sort of declines seen over the past year.

"Values are likely to continue to fall, albeit at a lower rate of around 10 per cent over the next twelve months.

"The regions that have suffered the earliest and most dramatic falls, such as Yorkshire and Humberside, may be among the first to see recovery," he added.

Picture by miramb