Prime London property developers are “re-examining the final phases of many schemes that were expected to include three and four bedroom apartments and penthouses”, says one lettings agent, as demand fails to keep pace with an over-supply of big luxury flats.
As rumours continue to circulate that Battersea Power Station (among others) is considering cutting the size of some of the scheme’s more vast residential units, estate agency Benham & Reeves has noticed a wider trend of developer downsizing: “With the slow down at the top end of the market and an oversupply of luxury properties, many developers are considering lowering the specifications or carving these larger apartments into one- and two-bedroom units,” says the firm. “These will sell more quickly and crucially, those bought for investment will let more quickly.”
Savills and the Candy brothers were among the first to warn of the potential for over-supply at the top of the market – calling it back in 2013 (here and here) – as luxury new-build pipelines surged. More recently, most big resi forecast units have been anticipating a cut-back in high-end activity, with JLL trimming its new-build price forecasts in February, and Morgan Stanley “assuming a 10-20% fall in new-build, high-end residential pricing” this year.
The luxury homes pipeline is, however, due to peak next year before chilling out a bit. Arcadis took an in-depth look at developers’ plans just last month, discovering that squeezed margins are pushing investors out of the top-end of the development market, and that some developers are now considering turning resi units into more lucrative office or commercial spaces. Read all about Arcadis’ research on PrimeResi here.
According to Benham & Reeves Residential Lettings’ own statistics, 49% of all flats let across its 15 London offices have been two-bedroom apartments. One-bedroom units constitute 22% of all transactions, studios 11% and the remaining 18% are apartments and houses with three or more bedrooms. These statistics are unsurprising when compared to the ONS research from 2013 that showed that 38% of rented households are occupied by just one person. Marsh & Parsons has also weighed-in on this trend, arguing in February that one-bed flats are “leading the way” in prime London.
“The problem is two-fold,” explains Marc von Grundherr, Lettings Director at Benham & Reeves Residential Lettings, “Firstly, the top end of the market was booming so naturally developers started building luxury properties. No block of flats was complete without one, two or three multi-million pound penthouses, not to mention other high end developments in prime areas where the starting price was £1m. Now that these properties are finally hitting the market, demand has dried up.
“Secondly, this isn’t Hong Kong or Manhattan. British families tend not to live in large apartments but in houses. Flats are for individuals, couples and downsizers. Even when we get a family asking for a larger property, they’re often renting while they look for something to buy or while they’re renovating their principle property. Developers and especially planners need to recognise where the demand is. It’s for smaller units that let more easily and these units are also the ones in demand by owner occupiers.”