With 5,200 new homes delivered since 2009, and another 7,179 in the pipeline, prime central London is in the middle of a residential development boom, says Pastor Real Estate. Despite a ‘tumultuous year’ in 2014, developers have delivered an 8.6% increase in the quantity of available housing stock across Mayfair, Knightsbridge, Marylebone and Belgravia over the last five years, and the pace seems to be continuing.
It’s not just the number of projects that’s on the rise; units are getting bigger – both in square footage and bedroom numbers – and levels of luxury specification are continuously being upgraded…
Summary
- The market for new build property across Prime Central London is changing. While owning a ‘pied-a-terre’ was common in prime London, increasingly ‘ultra prime’ and ‘super prime’ new build residential developments offer an urban paradise to their owner, with size and space as important as sophisticated luxury.
- Since 2009, housing stock across the Prime Central London boroughs has risen by 8.6%, equating to 5200 new residential addresses, compared to just 4% across Inner London as a whole. There is a marked difference between the boroughs of Kensington & Chelsea, which has witnessed only a 0.5% increase in stock and the City of Westminster, which has experienced a 14.6% increase.
- In the six years since January 2009, 144 development schemes have completed across Prime Central London, two-thirds of which had fewer than 10 units. There are 277 schemes in the pipeline (7,179) units. This is twice as many schemes, and three times as many units as completed in the last six years.
- Driven by market demand, there has been a shift in the development pipeline to larger units. Across Mayfair, Knightsbridge, Marylebone and Belgravia, all schemes at application stage include at least one two-bedroom unit (compared to only 88% of those under construction) and 71% have at least one three-bedroom unit.
- There has also been an increase in the average size of apartments. The average size of studio apartments at application stage is 763 sq ft, compared to 543 sq ft for those under construction.
- In 2015, 13 schemes are due to complete, bringing 213 units to market. 55% of the units are within two schemes – Phase 1 of Chelsea Barracks (Belgravia) and the Chilterns (Marylebone). Eleven of the 13 schemes set for completion are in Marylebone.
Prime central London’s special rhythm
2014 was a tumultuous year for London’s residential property market. It began with fears of a housing bubble, which were dissipated by the introduction of the Mortgage Market Review and the threat of a potential interest rate rise and ended with a radical overhaul of Stamp Duty Land Tax (SDLT).
Through it all, however, Prime Central London’s residential market has generally remained resilient and continued to prosper. Housing stock has risen by 2.9% across London as a whole since January 2009. However, Prime Central London has seen a rise of 14.6% in Westminster and 0.5% in Kensington and Chelsea, with an additional 5200 units coming to the fore (ONS, 2013). Part of the continued growth in this market is as a result of the high-end residential development that has continued to evolve over the last few years. In the key residential areas of Mayfair, Marylebone, Belgravia and Knightsbridge, more schemes were completed in 2014 than in all of the preceding five years.
High-end developments in prime London have remained in high demand for both domestic and international buyers, helping them to weather the storms of the market elsewhere. While the outgoings for buying properties over £1.125 million have risen due to the reform of SDLT and a strengthening pound, these costs are still on a level with other key locations around the world. The costs involved in purchasing a £1 million property, shown as a percentage of the purchase price are now 0.4% more expensive thanks to stamp duty reform. For those purchasing a £10 million property, the costs have gone up by 3.9%. However, the prestige attached to purchasing new build, ultra-prime property at some of the most sought after addresses in the world is unlikely to diminish.
As mentioned, there appears to be a new narrative emerging in the Prime Central London development market. Quality, high specification, location and the concept of selling ‘the ultimate lifestyle’ will always be important but unit size has now also become a critical part of the residential development story.
Developers and planners are responding to a market where a new build property in central London is, in many cases no longer a second/business property but somewhere that people would regard as home and as their ‘urban idyll’. Since the development of One Hyde Park in 2010/11, where one buyer purchased two apartments and then created a single apartment of over 25,000 sq ft, the specifications of new build properties have been changing. The websites of many of the highest profile schemes like Clarges and 20 Grosvenor Square are, as ever, dominated by high resolution photography and sophisticated computer generated renderings that embody luxury but they are also now promoting style, size and space.
The story of Prime Central London is increasingly the story of ‘super-prime’ and ‘ultra prime’, with developers creating urban retreats within one of the busiest capitals in the world.
Development across prime central London: The big picture
Prime Central London (Prime Central London) has been high on the investment agenda in the years following the credit crunch, partly thanks to London’s inherent attraction as a safe haven. In a time of uncertainty, the stable, democratic nature of the UK and its respect for rule of law, combined with London’s status as one of the world’s premier centres for business, commerce and culture, appeals to global investors. The attraction of London residential property is clearly demonstrated by growth in property values and it is not surprising that developers have moved to meet the demand.
In the six years since January 2009, 144 5+ unit development schemes have been completed in Prime Central London, delivering a total of 2,001 individual units. More than half (57%) of the schemes were in W1, but these produced only 37% of the individual units. Conversely, SW1 had 24% of the schemes but 50% of the units. In other words, schemes are significantly larger in SW1 than W1, which reflects the constraints of existing stock and limitations on scheme size in the heart of W1. In fact, small schemes dominate across Prime Central London. Almost two-thirds of the 144 schemes contained fewer than 10 units, while there were only six with more than 50 units.Looking at the market since 2009, it takes, on average, three years for a development to progress from the date of permission to final completion, split equally between 18 months pre-construction and 18 months for the actual construction. There was a dip in completions in 2010 but it came in the aftermath of the credit crunch, when even the Prime Central London market paused to take stock. Interestingly, there has been no particular sign of “catch up” construction since then, but simply of a market returning to normality. However, this could be about to change.
Prime central London: The planning pipeline
There are 277 5+ unit development schemes in the pipeline at time of publication, which will deliver 7,179 units to the market. This represents twice as many schemes and three times as many units as were completed in the whole of the last six years. Around a quarter of these are under construction already and the rest are moving through the various stages of the planning process (site acquisition, planning application, permission granted and construction started).
The bulk of activity is in the W1 and SW1 postcode areas, with W1 accounting for 55% of schemes and 36% of proposed units, and SW1 accounting for 33% of schemes and 44% (3,159) of units. Again, the number of schemes is greater in W1 but more individual units will be built in SW1, reflecting the larger average scheme size in SW1.
The majority of the units (75%) in the development pipeline are entirely new, as opposed to being refurbishments or new buildings with a retained façade. This statistic is skewed somewhat by the very large new-build schemes like Chelsea Barracks (which will ultimately deliver 325 luxury units, as well as new public spaces, a medical centre and retail space). Other significant new build schemes include Clarges Mayfair, overlooking Green Park and the redevelopment of the former US Navy HQ at 20 Grosvenor Square, with 36 apartments and ‘impressive lateral spaces’.
Refurbishment has become more common than new build in the more recent planning applications, which might indicate that the stock of potential development sites has been “used up”. If this is the case – and if demand stays relatively high – then the effect could be a supply squeeze. This, in turn, could push values up further. The test will be if entirely new sites are brought forward for development in the coming months, particularly once the General Election uncertainty has lifted.
Just over half of the schemes in the pipeline (53%) have fewer than 10 units, and they account for just 13% of all units. This illustrates the somewhat polarised nature of the pipeline, with a relatively small number of developments accounting for the lion’s share of units. Indeed, only 6% of schemes have more than 100 units, but they account for 40% of all proposed units – 2,903 in all.
Digging deeper: Specific area comparisons
Although an analysis of main postcodes gives a good broad-brush view of the market, Prime Central London’s diverse character is reflected in the existence of distinct villages, most notably Mayfair and Marylebone in W1 and Knightsbridge and Belgravia in SW1.
- Completions in 2014
In Mayfair, Marylebone, Knightsbridge and Belgravia, 59 new development schemes have been completed since 2009. These delivered 848 units and 15 of those developments were completed in 2014 alone. This is more than in any one of the previous five years, an even stronger indication of the buoyancy of the development market in W1 and SW1 as a whole.
These 15 schemes brought 148 new units to the market, with half in Belgravia thanks to the Ebury Square scheme, where 71 luxury one, two and three bedroom units were built in two blocks, around a ‘traditional garden square’.
Two of the schemes were fully sold prior to the completion of construction, despite the average construction period being 15 months – markedly shorter than in the wider Prime Central London market. The time-to-completion from granting of consent was also shorter than the wider market at 29 months. These fast times to market almost certainly reflect the perceived reliability of development in these sub-markets as investments.
In the pipeline
There are 86 schemes in the development pipeline, of which 16 are under construction. The remainder are in the planning process, including seven that are still sites, 12 that have had applications submitted and 51 that have been granted planning permission. There is enough new stock currently under construction to suggest that 2015 will see a similar level of delivery to the previous year, and may be higher as schemes are on-site early in the year.
Looking more closely, 48% of the schemes in the pipeline are in Marylebone and 36% in Mayfair and yet Belgravia, where there are only seven development schemes, accounts for 30% of the units. This is down to the dominance, in terms of scale, of the Chelsea Barracks scheme, which accounts for the bulk of the units. Without Chelsea Barracks, the average scheme size in Belgravia would be similar to other locations.
More than half (56%) of development schemes in Belgravia, Knightsbridge, Marylebone and Mayfair have fewer than 10 units. Opportunities to deliver large schemes are rare in the core of Prime Central London, where so much of the built stock is of historic interest and protected. Of course, the small number of large schemes account for a disproportionate share of the units. In the case of Mayfair, Marylebone, Knightsbridge and Belgravia, only 8% of the schemes have more than 50 units but they account for 40% of units in the pipeline.
Two development schemes in this area are planned to have more than 100 units and these skew the statistics. Chelsea Barracks and the Ebury Bridge Estate alone, both at the permission stage, will deliver 367 units when they are built – nearly a quarter of all units currently in the pipeline.
Units increasing in size… and number of bedrooms
It may be that the majority of development schemes are small but the units within them seem to be increasing in size. There is at least one three-bedroom unit within 71% of the developments.
If we delve into the profile of schemes coming into the pipeline at the application stage, compared with those already established as consents or under construction, a trend towards larger units seems to be emerging. For example, every single scheme at the application stage has at least one two-bedroom unit, compared with only 88% of those under construction. It is a small but discernable shift. In contrast, the proportion of schemes that include one-bedroom units falls from 75% amongst those already under construction, to 67% of schemes at the application stage. Interestingly, this is balanced by proportionately more studio apartments in those schemes – which enables the developer to maintain the overall number of units as well as offer the larger ones.
This pattern should not be especially surprising, as developers are adept at adjusting to the demands of the marketplace. Sales figures in two submarkets illustrate this well.
In Knightsbridge, the share of sales in the two-bedroom category has risen from 34.1% in 2012 to nearly 42% in 2014 and a similar, although less dramatic pattern is evident for the three-bedroom category. In contrast, sales of one-bedroom apartments have fallen from 18.3% of sales in 2012 to just 11.3% in 2014, which suggests that planning applications are responding to market signals. One of the schemes at permission stage in Knightsbridge (11-15 Grosvenor Crescent) consists of 15 units, all of which contain four or more bedrooms. In Belgravia, the story is similar, if less marked. The share of sales accounted for by two bedroom units climbed from 24.3% in 2012 to 38% in 2013 before settling back to 35.6% in 2014. Trends are not uniform, even in a relatively compact area like Knightsbridge & Belgravia, but the strong market preference for two bedroom apartments would be hard for developers to ignore.
At the other end of the scale, more schemes at the permission stage contain at least one unit of five or more bedrooms. This may reflect a response to high-profile deals grabbing headlines, although the proportion in the size band falls back to 33% for schemes at the application stage. The most likely explanation is a combination of the potential offered by specific sites and an increasing preference for larger units generally.
The story in Mayfair is rather different. Apart from a spike in two bedroom sales in 2013, Mayfair’s distribution of sales has remained fairly consistent, although 2014 included one sale of 11 bedrooms at Charles Street. However, there are signs of change afoot in this most prestigious of locales too.
Scale of units
There is also a clear shift towards more generous floor space standards in the most recent development proposals for studios, one bedroom and two bedroom units. Only the three bedroom units buck this particular trend and that may be explained by the smaller sample size. The average size of a studio flat in a scheme still at application stage is 763 square foot, compared with 543 square foot for those currently under construction – a rise of more than 40%.
For one bedroom flats, the average unit at the application stage is 43% larger than its equivalent currently under construction, while the increase in size for two bedrooms flats is more modest but still substantial, at 18%. Only for three bedroom units are sizes contracting – saving space from these units will enable the developer to preserve the number of units while offering more generous proportions in the majority.
In fact, there are examples of very spacious apartments across the board. The Audley Street Car Park scheme will include four bedroom units with 14,000 square feet of space, while Wigmore Street will have 3-4 bedroom apartments of more than 9,000 square feet.
Size by location
Although care needs to be taken when sample sizes are small, a few patterns can be discerned. One of those is that Mayfair and Knightsbridge apparently boast the largest size of units in the development market.
Mayfair tops the league with regard to the average size of studios, one bedroom, two bedroom and four bedroom apartments. Meanwhile, the average size of three bedroom apartments peaks in Knightsbridge at just over 4,700 square feet (at 53-56 Hans Place).
Audley Street Car Park skews the quite extraordinary average size of four bedroom apartments in Mayfair. However, even without this, the former In & Out Club on Piccadilly boasts a four- bedroom apartment of nearly 6,500 square feet.
In general, the size of units has increased across all four areas. In Belgravia, the average size of units in Phase 1 of Chelsea Barracks is nearly 4,200 square feet. It seems clear that the rising bedroom count and unit size in Belgravia and Knightsbridge has been driven directly by signals from the sales market. However, in Mayfair, more three bedroom apartments are coming to the market than have historically been sold, suggesting that developers here are taking their cues from neighbouring areas and managing to carve out larger units, despite the tight constraints of the existing stock.While size clearly counts when planning new developments in prime London, there are, of course many other factors to be considered. Whether it is a gym, a swimming pool, an on-site cinema, medical centre or concierge services to make living easy and secure, developers are now delivering all of the ingredients for delivering a ‘lifestyle choice’, with buildings finished and equipped to the highest standard.
Conclusion
While 2014 was something of a rollercoaster ride for the property market, it was also a landmark year in the completion of new developments across Prime Central London. 2015 is anticipated to witness a slowdown in the market across the capital, due to both the political uncertainty of the general election and subsequent policy implications (e.g. mansion tax) but it is likely that those schemes within the current development pipeline will continue as planned.
Of the schemes due to complete in 2015, 11 of 13 are across the current development hotspot of Marylebone, including phase 1 of Chelsea Barracks and the Chilterns (44 units). 90% of units in this luxurious scheme have already been sold and it currently boasts the most expensive penthouse suites currently on the market in the West End. With value growth expected to return in 2016/17 and the costs of purchasing here still on par with other global cities, the prestige attached to purchasing new build, ultra-prime property at some of the most sought after addresses in the world is unlikely to diminish.
For those looking to purchase in the prime residential districts across central London, it is clear that there is a definite move towards larger units and more bedrooms within the pipeline. Local planning policies recognise the demand for family homes in prime central areas, whilst landmark new build schemes are, without doubt, being developed for those seeking an ‘urban idyll’ within the heart of one of the worlds leading global cities.