Greenfield and urban land values hold firm across the North West

A new report by real estate advisor, Savills, says regional greenfield and urban land values held firm across the North West in the first quarter of 2023, with total annual increases at 1.1% and 0.7%, respectively.

However, despite mounting downward pressures on land values, the ongoing lack of land supply is resulting in reasonable competition and maintaining land values in some markets.

The report found that land buyers that are active remain selective but that supply remains constrained – with 11% fewer homes granted planning consent in England in the year to March 2023 compared with the previous 12 months.

Despite the challenging market backdrop the firm’s sentiment survey suggests there are signs that activity is picking up compared with the previous quarter. A net balance of 37% of Savills development agents reported more positive market sentiment up from 23% in March 2023.

Furthermore, a net balance of 17% of Savills development agents reported new sites being bought to the market in June, up from -54% and -30% in December and March, respectively.

The report also found that the number of bids has improved in both size and quality, signalling a return to a steadier land market equivalent to pre COVID-19 market conditions. However, buyers have become much more cost-conscious, with a greater preference for deferment of land payments.

With the number of bids per site reaching a more stable equilibrium and the quality of bids improving for the best sites, the report suggests there is no evidence yet of distress or widespread forced sales.

The report found that appetite for land remains resilient and values are holding up for sites between 50-150 units in primary locations with no significant upfront infrastructure costs.

Meanwhile, higher build costs, new building safety requirements, viability challenges and rising contractor insolvencies are placing a greater strain on land values in London. However, sites with capacity for alternative tenures, such as build to rent, co-living and student housing – allowing players to manage risk – are attracting the greatest interest from parties, according to the latest analysis.

Ed Rooney, Savills director and head of land agency in the North West, said: “The North West is seeing a slightly different market to the South of England where a lack of housing land coming through the planning system has meant that when sites are placed on the market there is good demand from housebuilders due to the scarcity factor and housebuilders replenishing their land bank.

“The slowness of the planning system has meant that the delivery of sites from the beginning of the planning process has added 6-9 months onto the pre-development timeline which adds further time pressure to getting outlets open.

“We are not seeing any significant deduction in land values but we are seeing housebuilders buying with extended deferred payments terms in an attempt to preserve their cash position and in addition this means they can look at more opportunities as they arise.”

Ed Rooney

He added: “Housing Associations remain active in our region, supported by grant funding, despite pressures to divert spending to existing stock improvements – with many increasingly growing in expertise and ability to generate successful offers to deliver new sites.”

According to the report, the top 50 developing housing associations (Has) completed 42,000 homes in 2022/23, marking a four per cent increase on the previous year. However their plans to build a further 195,000 homes over the next five years, will require more land to be acquired, with 46% of this pipeline yet to be secured.

Furthermore, single family housing deals made up more than a third of total build to rent investment in the first half of the year, up from seven per cent in 2022. This comes as the sector continues to rapidly expand and housebuilders benefit from de-risking a proportion of their future sales through partnering with institutional investors.

Looking ahead to the second half of the year, Rooney said: “In the short term, if the supply of land remains constrained then the land market is likely to continue operating in its current form, broadly maintaining values for straightforward deliverable sites, as they are relatively few and far between.

“Whilst the mix of some economic uncertainty, and the additional costs required to deliver sites will continue to apply pressure, the levels of competition for land is likely to be steady as the major housebuilders cautiously return to the land market to selectively replenish their landbanks alongside sustained demand from smaller regional parties.”