Speakers confident in residential development despite financial market volatility and an expected slowdown in price growth

Savills Valuation Department held its 7th Annual Residential Market Briefing and Focus in London yesterday October 3rd 2007. The seminar was attended by over 350 property professionals including representatives of the UK's leading clearing banks, as well as many private, foreign and investment bankers. Executives from a number of the UK's leading property development and investment companies also attended. The four key speakers, introduced by Anthony Griffiths, Director Savills Valuation & Litigation, were:-

Patricia Luck-Hille, Savills

The focus of Patricia Luck-Hille's presentation was the top end of the central London market and how factors such as the health and wealth of the City, global market issues and the current strength of sterling against the dollar, have a significant bearing on the value of prime central London property, as distinct from the mainstream UK markets. Patricia gave examples of record values achieved in 2007: £5,000 plus per square foot for exceptional apartments at No. 1 Hyde Park; £3,150 per square foot for a unique one-bedroom apartment in Eaton Square, London SW1; and over £1,100 per square foot for apartments in the Pan Peninsular Building, a larger scale development of 790, apartments in Canary Wharf where she said: 'size can matter and big can be beautiful'.

Commenting on anticipated City bonuses she said that these were now mooted to be down on 2007's exceptional levels but are still believed at this stage to likely to be extraordinary, and would continue to be a positive influence on the residential market in 2008. She also looked at the underlying strength of the rental market and the upward trend in the last 3 years, largely driven by employment growth, mainly in the financial services sector. She reminded developers and their lenders that tenants were increasingly demanding an ever higher quality of finish in the upper end of the rental market. Summarising the London residential markets, she said: “Investor demand remains relatively strong with an appetite to invest for capital growth rather than for rental returns. Any slowdown in the property market is likely to encourage investors to seeking out 'real deals' in value in 2008”.

James Cunliffe, Savills

The keynote of James Cunliffe's presentation was the imbalance in supply and demand of residential property, especially in London. He looked at how, over the last 5 years or so, the trend has moved away from building houses to flats.

He said that, “In 2000, approximately 20% of new build properties were flats; by 2006 this had increased to over 50%”. He also commented that “Due to the high flat supply, and shortage of new build houses, in terms of capital growth, new build houses had significantly out performed new build flats”.

Using the City of Bristol as an example, he presented evidence showing the transition to City centre flat developments. This is in contradiction of the research that clearly showed the people preferred living in houses rather than flats.

James Cunliffe also demonstrated how the impact of global financial shocks had only had a short-term impact on the residential markets which had proved to be remarkably robust over the last 20-years.

Barry Jessup, First Base (Guest Speaker)

Barry Jessup asked delegates to think about 'A New London Market' and asked: are developers providing the right product for a changing London? Highlighting the vision of First Base, Barry Jessup said that workers are no longer prepared to compromise their lifestyle with long commutes, and that the challenge facing developers is to provide schemes which respond to this, both today and in thirty years time. Often working with leading architects, such as Richard Rogers, Barry Jessup set out the key elements to delivering successful urban regeneration projects: high quality design and space planning, great amenities, strong environmental credentials and attentive long-term management to ensure properties are attractive to owner occupiers and investors.

Barry Jessup demonstrated that there is a widening affordability gap between housing provided under Section 106 Agreements, and open market housing. He also highlighted the disparity between the number of apartments being built, and the increasing demand for larger apartments and houses.

Significant factors contributing to the changing market place were identified by Barry Jessup as: international immigration, with a growing number of young people including students moving in to the workplace and requiring housing; lifestyle changes; and environmental concerns. The need for developers to meet Londoners' changing aspirations while working within an increasingly regulated planning environment is, said Barry Jessup, the change that developers have to embrace. Roger Hepher, Savills Hepher Dixon

Roger looked at six elements of planning that impact on the residential marketplace and values. He said that despite noises about ingress into the Green Belt, the concept of the 'Compact City' remains at the heart of planning policy in the UK.

The need for developers and planning authorities to meet the challenges of developing at densities of 1,000 habitable rooms per hectare or more is fundamental to much of the planning work undertaken by Savills Hepher Dixon's team of 150 professionals. More housing is another theme that is affecting the planning process and the Government's requirement to meet a target of 3 million new homes between now and 2020. This coupled with, in London, a 50: 50 target ratio of private to affordable housing, often leads to intense negotiation on behalf of developer clients.

Sustainability is a fundamental concept now embedded in planning policy, and Roger explained how it is particularly reflected in the proliferation of mixed use development. Challenging energy efficiency and renewable energy targets often pose a significant burden upon development schemes.

Roger Hepher also emphasised that the Government seems to mean what it says about driving up standards of design - and that it is now not uncommon to see appeal schemes being dismissed on design grounds. He noted that planning authorities have become increasingly demanding in securing planning obligations, which frequently results in difficult negotiations between developers and planning authorities. Government is being realistic enough to recognise that local Councils are often not well placed to take the planning decisions that need to be made, and so are putting in place more effective mechanisms - an example being the Mayor of London's new powers to grant planning permission.

He concluded that the burdens on the development industry have increased significantly, and are continuing to increase. This casts doubt upon to whether or not residential developers can deliver the housing targets set by Government.

To close what was considered a highly informative seminar, Jim Ward, Director of Savills Research, gave an overview of the current state of the residential market and responded to questions from the floor. A Savills Research briefing note on the Prime Central London residential market is available on request.

-ENDS-

Notes for Editors

• Pictures of key speakers available on request. Tel: 020-7034 4720 • Copies of presentations notes can be requested

FOR FURTHER INFORMATION PLEASE CONTACT:

Patricia Luck-Hille, Savills Valuation & Litigation: 020 7 016 3727 James Cunliffe, Savills Valuation & Litigation: 020 7016 3722 Jim Ward, Savills Research: 020 7409 8841 Roger Hepher, Savills Hepher Dixon: 020 7427 0232

John Vaughan, Savills Press Office Tel: 0207 034 4725 Email: JVaughan@savills.com