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The London new build sales market has rocketed since the downturn. There were around 7,600 sales in the year to June 2010, and over the last three years that annual figure has increased to over 16,000.

The majority of these homes are in inner London boroughs where the strength of the markets has given comfort to developers, in particular in the more prime locations, where they are taking advantage of a seemingly foolproof market.

In prime central London this strong demand has increased the capacity for new supply. Bank debt requires significant forward funding and developers have been able to achieve this through securing sales off-plan.

Higher levels of development have meant that the size of the prime markets has grown; what was considered prime five years ago is now considered super prime. In terms of new build, we now refer to the prime market (over £1,000/sq ft), and the super prime market (over £2,000/sq ft).

New build property is pushing the boundaries of these prime London markets into new locations. For example, in the last two years, sales in developments such as The Lancasters have opened up markets in Bayswater to a new buyer profile. Similarly, there has been an expansion of the eastern boundary of the super prime market, as Midtown and South Bank have been experiencing super prime sales of larger units.

Super prime London property is a discretionary purchase and buyers will often not surface until the right property becomes available. This might be the traditional elegant home in one of the best addresses, such as Eaton Square, or a brand new luxury apartment with hotel style facilities.

Development pipeline

Though the supply of prime new build stock is currently limited, there is a large pipeline of units due to be delivered into the markets in the next five years.

Our analysis suggests that future supply now exceeds the previous peak delivery, meaning that the pipeline of prime schemes across London is entering uncharted territory.

New developments in prime markets are selling well, with evidence showing schemes selling out up to two years off-plan, achieved through a combination of overseas and UK based launches.

The size of the super prime market is much larger than it was pre-2007, and the new build market has been increasing its share of this market, meeting demand from an expanding pool of ultra high net worth individuals.

Looking forward

While entering uncharted territory is unnerving for some developers, others take comfort that sentiment in the prime market is still positive; current evidence from both UK and overseas sales in the first half of this year indicates that the market remains strong and schemes are still selling well.

The need to keep an eye on what is transacting in relation to specification, location and target market is becoming ever more evident in order to optimise development return and control risk.

The extent of market capacity will ultimately be dictated by the quantity, quality and location of the stock brought to market and the perception of London as a store of wealth relative to other global locations over the next five years.

Overseas investors play a vital role

Buyers of prime new build property are mostly international, and where they come from is largely a function of where these schemes have been marketed. As such, purchasers from China and Pacific Asia are dominant within the new build central London market.

However, purchasers of exclusive super prime property are often from Russia or the Middle East. The majority of overseas buyers of new build property in prime London are investors, therefore it is important to look at the prime rental market to understand market capacity.

Premium for scale

When a new scheme comes to market one of the key advantages is the ability for units to be tailored towards the needs of high net worth overseas buyers, especially those buying early in the stage of construction.

In particular, we have seen an increase in the number of big budget purchasers in super prime locations wishing to combine multiple units to create one large property, typically over 10,000 square feet on the higher floors that take advantage of views. This reflects limited opportunities to acquire comparable stock in the second hand market.

In 2012, only around 40 second hand properties over 7,000 square feet became available to a market that has seen strong value growth.

Taken from
Spotlight: Prime London Residential Market - Autumn 2013

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