Resident development land values in central London have increased faster than house prices in the last 12 months, according to analysis from an international property adviser.
The increase in residential land values has outpaced the growth of hotel and office land values in central London, Savills said. The value of residential locations in the heart of the capital has increased by four per cent over the last six months, the group found, taking the total increase over the past year to 17 per cent.
Despite the dramatic price rises of residential land, mainstream house prices have only grown by two per cent.
Savills head of residential research Yolande Barnes said: “Although central London land price growth has exceeded house price growth values remain 10 per cent below peak, suggesting scope for further growth. Finite land supply, particularly in prime, central locations, coupled with continued demand for high-end product for overseas buyers, has buoyed values and this growth in residential land values arguably strengthens the case for the conversion to residential of sites earmarked for office or hotel use.”
However, there has been little or no growth in land prices in outer London. Outside of the capital, the growth of greenfield land has slowed down dramatically, with values rising by only 3.2 per cent in the last year, some way behind the annual growth of 15.1 per cent recorded at the end of September last year. Prices have gone up by just 0.2 per cent in the third quarter.
Meanwhile, annual urban land value growth has fallen to 2.3 per cent compared to last year, while it stood at 13.3 per cent some 12 months ago.
Barnes said: “UK land values remain 45 per cent below peak, with little scope for further growth while development viability is so fragile in many locations and particularly as UK mainstream house prices are still more than 10 per cent below their peak.”
A generally poor economic outlook and the challenging housing market have led to growth slowing, according to Savills. The group says land values have polarised in the wake of the economic downturn and this is a trend they expect to continue. Developers are looking to work on projects in areas with high demand that are easy to develop.