The new-build residential pipeline for Prime Central London (PCL) is becoming acutely constrained, with supply struggling to keep pace with demand from domestic and international buyers (writes Rupert des Forges).

Our newly published report on the PCL market shows that the Prime Central London residential development pipeline has contracted by 70% over the past decade. When looking at homes with a value of £3,000 per square foot and above – with prices ranging from £1 million to north of £30 million – the pipeline of homes with planning, under construction or completed, has shrunk from some 3,350 units ten years ago down to 1,114 today.

What are the causes?

We are seeing this supply crunch being driven by a convergence of factors which are limiting developers’ ability to bring new, prime stock to the market.

On the supply side, a shortage of developable land, coupled with increasingly restrictive planning policies, have curtailed the number of new schemes being given the green light across PCL’s most coveted neighbourhoods including Mayfair, Belgravia and Kensington.

Stringent new policies brought into the Westminster borough prohibit homes over 200 square metres, while Kensington & Chelsea is prioritising smaller units. This is despite robust demand for bigger units, given 25% of the 77 new homes sold in Westminster over the past year exceeded that 200 square metre threshold. In addition, planning restrictions for taller buildings throughout PCL will also affect the supply.

Compounding these planning headwinds are soaring construction costs amidst broader inflationary pressures, as well as higher financing costs following interest rate rises. These rising capital expenditure hurdles have forced some developers to re-evaluate the viability and scale of new PCL developments and the number of newly consented schemes has seen a sustained drop-off as a result.

Is there still demand?

The UK’s ultra-high net worth population is projected to expand by nearly 25% through 2028, according to Knight Frank’s Wealth Report. This expanding pool of affluent buyers will be concentrated in a supply-constrained PCL pipeline. Indicative of the robust demand, total sales of existing and new homes above £5 million eclipsed £5 billion in 2023. While activity is expected to be more limited this year in light of political and policy uncertainty, transactions are still taking place and London’s enduring appeal continues.

Within the super-prime £10 million-plus segment specifically, £3.4 billion was spent on 156 transactions in 2023 – a nine-year high and 2% above pre-pandemic levels from 2015-2019. However, the development pipeline for such top-tier properties is becoming increasingly constrained.

Looking ahead

Against this backdrop of a supply-demand imbalance, Knight Frank is forecasting average property prices in PCL will rise by 16.4% over the next five years, outpacing the 15.9% projected for Greater London.

Knight Frank is forecasting average property prices in PCL will rise by 16.4% over the next five years, outpacing the 15.9% projected for Greater London

For discerning purchasers seeking a best-in-class new-build primary residence or investment property, the rapidly dwindling options in London’s most desirable neighbourhoods will necessitate an opportunistic yet strategic buying approach. This entails close collaboration with advisory partners to ensure prioritised access to a narrowing pipeline of viable options.

While potential near-term political and economic volatility could provide transitory challenges, the fundamental appeal of Prime Central London’s residential market remains undiminished. Those well-positioned buyers able to secure premium new homes amidst today’s supply constraints may be investing in an increasingly scarce and coveted asset class over the long term.

Main image: Mayfair