The annual EC Harris ‘London Prime Residential Development Pipeline’ report shows that 125 schemes are currently at various stages of site acquisition, planning and construction equating to a total floor area of nearly 20 million square feet, equivalent to the size of the Olympic Park in East London.
This is an increase of approximately 70% from last year’s report, fuelled by developers and landowners responding to continued strong demand from overseas cash purchasers for new residential property and rising property values across prime London residential markets.
The report indicates planned development is strongest in the Chelsea & Fulham areas with one in four (25%) of the units in the pipeline located there, this is followed by developments on the South Bank (17%), City and Fringe (12%), Midtown (11%) and Kensington (10%).
2016 appears to be the peak year for delivery, with schemes totalling circa 3,800 units in a race to progress and come to market in that year alone.
Two of the largest schemes on the pipeline are the major regeneration schemes planned for Earls Court and Battersea Power Station, each predicted to deliver several hundred prime residential units over the course of the next decade, reflecting that ‘prime’ is no longer confined to the likes of Mayfair or Chelsea.
Mark Farmer, head of residential at EC Harris, said: “The size of the pipeline is a reflection of a massive vote of confidence in London and in UK plc and will have only been enhanced by this summer’s Olympics showcase.
“London prime residential continues to act as a magnet for global investment, and offers clear opportunities for properly organised and funded developers and investors to generate healthy returns. However, this positivity is tempered by some notes of caution.
“There are significant risks to the realisation of the pipeline including the sustainability of the unprecedented levels of international investor and sales demand fuelling the lower end of the prime market, a lack of development funding and a scalability of specialist development skills needed to deliver these opportunities.”
The size of the challenge for London’s development industry is evident, with less than 500 new build prime units coming to market during 2012 including final sales on high profile schemes such as One Hyde Park, The Lancasters and the Shard.
To achieve the potential peak pipeline rate of development in 2016, an eight to ten fold increase in development capacity would be required and an increase in development funding would also be needed.
Farmer added: “All these factors will effectively act as a funnel through which supply is likely to be controlled naturally and will, in all probability, smooth out the potential ‘bubble’ indicated in 2016 / 2017, pushing it downwards and further outwards.
“The timing of future schemes and rate of delivery will always involve an element of conjecture. What is undeniable though is the sheer size of the pipeline based on current sentiment which is staggering.”
But he warned:“In reality it is the lower end of the prime London market that bears the greatest risk of demand slowdown in the future relative to potential oversupply. Developers working in this market need to work hardest to define and differentiate their product, refine their sales and marketing strategies and have a cautious and controlled delivery strategy which can react to variable rates of sale and external circumstances.”
