This is the sum of upscale private residential development either already on site in the heart of the capital or planned for delivery by 2020, surveyor EC Harris has calculated.
The big surge for supply is likely to be as soon as 2014 and 2015 when more than 4,000 new units – total value £8 billion - could come to market.
These numbers exclude the value of transactions in the existing market, and only include the top slice by value of development in prime central London locations.
While construction continues to lag in most of the country, central London roars ahead. As well as this residential construction boom, high profile office developments are also steaming ahead and then there is the £16 billion Crossrail project.
International demand for London prime residential product has benefitted from sterling depreciation against key overseas currencies, EC Harris says, and more recently geopolitical unrest in the Middle East and North Africa has increased demand for safe haven investments. However, it warns that these conditions are volatile and are susceptible to rapid change. Risk factors that could impact this demand before the planned pipeline of new prime residential property is available include international monetary policy changes and continued global economic uncertainty.
Further UK government banking sector regulation could also impact sentiment for London’s role as a world financial sector albeit this is unlikely to dampen the overall desirability of London as a place to live or have a ‘bolt hole’ for most high net worth individuals.
EC Harris head of private residential Mark Farmer said: “To address this backdrop of a marked increase in supply and the general uncertainty over continuing levels of demand and sales price growth, London prime residential developers need to have a robust and realistic business plan. They should consider very carefully whether the properties being developed are differentiated and have real attraction that will suit the unique requirements of an increasingly discerning future market faced with more and more new development choices.”
There is clear evidence of a ‘feeding frenzy’ for prime London residential sites which have led to a spate of land deals failing to complete or coming back to market, due to a misalignment of land prices relative to achievable sales value and cost to deliver. High profile examples include the In & Out Club in Piccadilly, 10 Trinity Square, Alpha Place, The Glebe School and 20 Grosvenor Square.
EC Harris analysis shows that despite this note of caution regarding supply and demand imbalance there are still opportunities for developers, and broadly trended sales value growth is expected to return to a healthy 6-8% pa beyond 2012. This is likely to exceed background levels of construction price inflation for the foreseeable future.
The EC Harris research only includes projects with a sales value of more than £1,000 per square foot and excludes affordable housing unit numbers as well as one-off personal residence projects. It is an exhaustive analysis of all schemes in the public domain.