Balancing the town centre apartment development equation

As urban living continues to appeal to professionals, students and downsizers, the development of town centre apartments remains an attractive proposition.

However, recent legislative changes, particularly the Building Safety Act 2022, are reshaping the financial landscape for developers.

Gary Jeffries, Head of Residential Property at Vail Williams, examines the viability of town centre apartment developments, addressing how the new regulations are influencing design, construction, and investment decisions.

Challenges for town centre apartment development

Developers are facing an increasing number of hurdles to overcome in order to successfully deliver town centre apartments.

• Higher Construction Costs
  Compliance with the Act’s stricter fire safety standards (such as the use of non-combustible materials and improved fire compartmentation) significantly increases build costs. The need for fire-resistant cladding and upgraded sprinkler systems also adds to the financial burden, bringing into question development viability.
• Funding and Investor Confidence
  Lenders and investors are becoming more cautious, requiring assurances about compliance and potential liabilities. In some cases, funding gaps are emerging, particularly for smaller developers who lack the capital to absorb increased costs.
• Planning and Affordability
  Town centre developments often focus on smaller units aimed at first-time buyers and renters. However, higher development costs may make achieving affordability targets difficult, creating tensions with local planning authorities (LPAs).
• Market Saturation and Demand
  Some town centres are already experiencing oversupply of apartments, particularly in areas previously targeted for regeneration. Developers must therefore assess local demand carefully to ensure viability.

Town centre development opportunities

Despite the challenges, there are still opportunities in town centre apartment development – from making the most of incentives and the build-to-rent market, to delivering stock which speaks to the sustainability and safety exigencies of potential buyers.

• Regeneration Incentives
  Many councils are prioritising town centre regeneration as part of their “levelling up” strategies. Developers could benefit from planning concessions incentives for projects that align with these goals.
• Build-to-Rent Market Growth
  The Build-to-Rent (BTR) sector is thriving, with institutional investors and tenants favouring professionally managed developments. Town centres with good transport links and amenities are particularly attractive for BTR schemes, which offer long-term revenue streams.
• Focus on Sustainability and Safety
  Developments that integrate safety with sustainability—such as net-zero carbon targets—are likely to attract both funding and buyers. Meanwhile, modern town centre apartments designed with these principles may command more of a premium.
• Demand for Urban Living
  The appeal of walkable urban environments, especially for young professionals and downsizers, supports continued demand for high-quality, well-located apartments.

Viability considerations for investors and developers

The Building Safety Act has undoubtedly raised the bar for compliance and accountability, increasing costs and operational complexity. This means that developers must carefully evaluate:

• Site Selection: Prioritise locations with strong demand, limited competition, and supportive local authorities.
• Financial Planning: Account for higher upfront costs and incorporate contingencies for long-term liabilities.
• Design and Innovation: Leverage modular construction and fire-resistant materials to improve efficiency and safety while reducing costs.
• Market Analysis: Focus on understanding local demographics to tailor developments to specific needs, such as affordable housing or BTR.