Development: where is the demand?

The investment market saw a significant reverse with property values plunging by as much as 30-40% and land values in some cases dropping to zero.

Since the autumn there has been a marked improvement in prime investment yields as a number of institutions re-entered the market, albeit they are looking for well secured medium to long term income.

But investment yields for speculative development remain at historically high levels; finance remains limited and costly both in real terms and the high level of developer equity required. Reduced corporate profitability has led to fewer occupiers causing, in many cases, rents to fall, requiring longer letting periods. These market problems have combined with the Governments mistimed imposition of empty rates on all empty buildings and it’s not hard to see why commercial development remains in the doldrums.

The harsh reality has been, in many cases, that both office and industrial schemes have simply not been viable; in fact in some cases sites have shown a negative land value. The advice to landowners has been ”if you don’t need to sell hold on” as even if a sale were possible values have fallen such that it often makes sense to wait.

There are signs of improvement although any recovery will be gradual and it may still be a bumpy ride for some time.

So what can landowners do?

In the short term commercial site values will remain depressed but all Councils are now at various stages of preparing their Local Development Frameworks (LDF). Now is the time for landowners to look at the allocation of their land, renew or question existing planning consents to position themselves to take advantage of the recovery that will come. In other words what form of development will be in demand as the market lifts?

As an example many local authorities are under pressure on housing numbers, particularly in regard to affordable housing, and they are asking if some employment sites are really going to be needed or, given housing pressures, whether they can be reallocated for housing. There are definite signs of returning activity in the residential market. Taking Bracknell as an example, it already has an eight year supply of built and empty offices; does it really need this much, will it all let and could some of it be better used for housing?

There is a clear opportunity now to make representations to the LDF process to ensure that your site has the right planning allocation to take advantage as values and demand return.

The right planning consent has always been the key to development.