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As we approach the final stretch of the year, the property market enters its annual phase of heightened activity. This is set against the current backdrop of inflation driven cost increases, political unrest, and the persistent conflict in Ukraine. But, negativity and instability in property create opportunity. The pound remains historically weak against both the dollar and the Euro, which continue to make the UK good value for international investment.
On the world stage, London stands out as an exceptional city with its unparalleled blend of history, business, culture and education. This paired with its mild climate, robust legal framework, air quality and public space, also makes London a brilliant place to live. These factors combine to create an environment with long term sustained demand for housing from both a domestic and international audience.
Investing in property development should boil down to one simple question: does the price of the site, plus the development costs generate sufficient profit to justify the risk involved. The current climate in residential development however is making this question increasingly hard to answer.
First and foremost, developers are currently confronting a significant hurdle in the planning system. Put simply, obtaining planning approval has now become such a lengthy, costly and uncertain endeavour, it is having a meaning impact on investors willing to take on sites that require planning. This in turn is impacting the ability to repurpose sites and therefore pipeline.
The planning process is not the only challenge for developers. Site prices have remained high, due to unrealistic expectations by vendors. This paired with the rapidly increasing financing and construction costs over the past two years has made brining forward residential sites very difficult.
Opportunities have opened up in distressed situations. Not all can sustain the heightened costs in holding sites or properties, particularly those highly leveraged. This in turn cultivates opportunities at more realistic market pricing.
As we see inflation starting to fall month on month, this should in theory also be followed by interest rates. At this point we will start to feel a new normal when it comes to the cost of development and the value of property. It is then that things may start to feel more comfortable again.
Ultimately, demand for property and development opportunities in prime London remains strong. A reset is beginning to unfold and what we need is this to be paired with a more functional planning system that will kick-start activity in the market.
We are working hard to capture the rare opportunities this quarter presents and to close the year on a high. As we head towards the close of 2023, a focus for the team is The Osborn, a project situated in the vibrant and creative area of Spitalfields, E1. We have been appointed by the Lender to manage the delivery and sales of this exclusive collection of 17 new warehouse-style apartments and commercial units. As we expand and diversify our portfolio, The Osborn represents an exciting new chapter as our first project east of the City and crystallises our ambition to operate the REDD business across the wider prime London area.
