London Residential

Residential development land in central London has seen small falls in value in the last six months (-1.5% between September 2015 and March 2016) following substantial growth (72%) between September 2011 and September 2014 and a subsequent period of stability. However, there has been a considerable amount of variation across London.

Demand and values for development land have increased in outer London as developers look for opportunities in markets where there is most unmet demand and stronger house price growth. This is reflected in the 40% increase in the number of sites sold by Savills in London outside of zone 2 in 2015 compared to the previous year.

Furthermore, the proportion of sites recorded as sold on Molior in outer London boroughs has increased steadily from 32% in 2012 to 37% in 2013, 40% in 2014 and 43% in 2015.

Falls in house prices in high value areas and softening of sales rates in central London have put pressure on land values. Over the 18 months, since the change to Stamp Duty on residential property sales, house prices in prime central London (PCL) have fallen (-6.7% since their peak in 2014 according to our house price indices). We are now starting to see the effect of this on land values, with locations in more central areas of London seeing more downward pressure on values.

London Office vs Residential

Office values have been catching up with residential values with regard to both built stock and land value. In 2015 prime offices in the core of the West End and homes worth more than £10 million had an average value of c.£3,000 per square foot. However, in 2013 offices in the area were half the value (46%) of the homes according to Savills indices. Land values for office development in central London have increased by 17.1% over the last two years whereas residential land values only increased by 2.5% according to our indices.

This notable growth in office values reflects the strong rental growth in core central London and in office locations with planned infrastructure improvements such as future Crossrail stations as well as yield compression up to the end of 2015.

However, the increase in values of office development land have slowed to 0.6% in March to September 2015 from 6.4% in the previous six months. Despite the strength in the office market, the new Stamp Duty Land Tax banding system for commercial property (including development land) introduced on 17th March 2016 (effectively an additional 1% SDLT on large transactions) reduced the value of office stock worth over £1.05 million and has limited land value growth.

^{Source: Savills Research}

^{▲ 17.1% increase in land values for office development in central London over the last two years}