The financial difficulties facing commercial and residential developers have been emphasised by a new report detailing the collapse in land values over the past year.
According to Knight Frank’s Residential Development Land Index, urban development land outside London has fallen by 33 per cent over the past year and by 15 per cent in the past quarter alone.
The West Midlands has seen the value of brownfield land fall by a quarter with greenfield sites falling by 21 per cent against a national average of 30 per cent over the year and 13 per cent in the past quarter.
Yorkshire and Humberside have been hit hardest by the downturn, with land in both categories now worth around half its value a year ago. The North-west is close behind, with drops of 41 per cent and 36 per cent reported for brownfield and greenfield sites respectively.
Prices in Inner London have seen the smallest decrease in value with a drop of by just 10 per cent although the most desirable sites are retaining their value. Outer London areas have fared only marginally worse, with a fall of 15 per cent.
Jon Neale, head of development research at Knight Frank, said: “Over the past year, developers have put their land acquisition activities on hold, which has dramatically reduced demand for sites – by as much as 60 per cent in some parts of the country.
“Developers have found it almost impossible to access finance to buy land, while the pronounced slowdown in the sale of new homes has prompted them to reconsider the size of their future needs. Indeed, many are selling sites to raise cash and bolster their balance sheets, which has dramatically increased the supply of land on the market, further depressing values.
“There is evidence that many other vendors have not yet come to terms with the changed market conditions, and have unrealistic expectations of what price their site can achieve, particularly if it was bought at the top of the market.”
The report has found that plots that already have planning permission and are in well established locations are attracting the most interest although there is a significant undersupply of this.
“The lack of activity among housebuilders is exacerbating the undersupply problem that still faces the UK, despite the downturn in the sales market,” said Neale. “In the long-term, this will create a strong demand for new build property. Meanwhile, there are still insufficient development sites to cater for this long-term housing need, particularly in London.
“It is unsurprising, that speculators are already active in the market. However, there are a larger number of cash-rich players who have yet to enter the fray, although they are watching prices very carefully. The ongoing financial crisis and uncertainty over the prospects for British economy over the next year suggest that values will continue to fall.”
