1. Savills Research | Residential August 2009
Residential
Property
Focus
The evolution of the
property market
How the world of residential
property is changing
Savills
Research
savills.co.uk/research

2. This publication
This document was published on August 1. It contains a review of all the key housing
market indicators and news to the end of July 2009. The data used in the charts and tables
is the latest available at the time of going to press. Sources are included for all the charts.
We have used a standard set of notes and abbreviations throughout the document.
Glossary of terms
n Mainstream – mainstream property refers to the bulk of the UK housing market with, for
example, price movements monitored by reference to national and regional average values.
n Prime – the prime market consists of the most desirable and aspirational property by
reference to location, standards of accommodation, aesthetics and value. Typically it
comprises properties in the top five per cent of the market by house price.
n Patient equity – non-income generating long-term investment.
The most commonly used abbreviations are:
n Q109 – refers to the first quarter of 2009
n H109 – refers to the first half of 2009
n PCL – prime central London
n Peak – refers to the first half of 2007

3. Savills Research | Residential Property Focus August 2009
Foreword
The evolution of the property market
Just how indelible a mark will the current downturn leave on the industry?
Yolande Barnes believes that the residential property market must now adapt.
T
here is little doubt that the credit The final, and only constant, evolutionary
crunch has changed the housing force in the housing world is a continuing Inside this edition…
market. However, the uncertainty is mismatch between the number and type of
whether the change is permanent new households requiring shelter, and the
or temporary; and if it is the latter, will it number and type of new homes actually
04 Prime markets
Central London leads the way
be long-lasting or short-lived? There may being built. The debt drought will only feed
have been a springtime bounce but anyone this stock shortage as housing starts fall to
in the residential property industry who unprecedentedly low levels. 06 Mainstream market
expects a return to ‘normal’ is waiting for What is the significance of the
a ship that we think sailed long ago. Evolve or die out? recent upturn in house prices?
Our analysis suggests there are three Drawing analogies between the biological
primary forces that could shape the future sciences and the world of development 08 Regional forecasts
of the housing market, but we only have a finance and housing delivery may seem Annual forecasts for regional
precedent for one of them. When it comes tenuous but, on the 150th anniversary of house price growth
to housing ownership, development and his seminal publication, business gurus
delivery, things haven’t been ‘normal’ for a are very fond of quoting, or misquoting, 09 Rental market
while now. Charles Darwin: “It is not the strongest of What is the legacy of the credit
Even before the credit crunch, at the the species that survives, nor the most crunch on this market?
height of the boom, the structure of market intelligent, but the one most responsive to
demand was changing. This change, in change,” they say. This may be true, but a 10 Development land
conjunction with a shortage of debt and a successful response to change depends A two-tier market is established
shortage of housing, will shape the future of on an accurate understanding of what that
the UK residential property industry for change is.
at least the next decade. It may be appropriate to note that
12 Coastal property
The future of coastal premium
Looking at evolutionary forces in the scholars have criticised this interpretation
housing and development markets, we of Darwin’s theories. They believe it is not
see that a tectonic shift took place in the the species that are most responsive to 14 Summary
ownership of residential property long change which can survive but the ones
before the sub-prime crisis took hold. that have luck or already possess the
Mortgaged owner-occupiers started to right features to be passed on to the next
decline, as a proportion of all tenures, generation. As Darwin states in On the
as long ago as 1992; their absolute Origin of Species “those which do not
numbers were declining from the change will become extinct.”
millennium onwards. Since then, the If we transfer this statement into the
numbers of outright owners and the realm of property, it means those best
number of private renters have exploded. placed to take advantage of the post credit
We are in a new era where private crunch environment are those who were
occupiers divide into two groups: those already starting to evolve or who were
with equity and those without. An ready to evolve before the economic crisis.
increasing number of relatively affluent Those investors and developers with low
households are unable to access the debt levels, special skills and access to Yolande Barnes is a Director of Savills
housing market for lack of sufficient equity are the most likely to become new residential research. She joined Savills
deposit. Ownership in coming decades will and successful species in coming decades. in 1989 to pioneer the then-new field of
be in the hands of those with equity (either In this issue of Residential Property residential research. Since 2003, Yolande
corporate entities or individuals) and the Focus, we examine the nature and the has also taken on another new research
potential market for private renting and characteristics of the changed property discipline known as Place Making, looking
co-ownership is huge. environment as well as how the industry into mixed-use and land issues.
The second, and more obvious, change may be able to adapt and find opportunities
is to be found in the lending climate within it. What is clear is that even if it takes
that has come after the credit crunch. A a different form, demand will return as the
continued drought of debt finance can be market evolves. With inherently limited
expected, impacting not only the cost and stock this means a recovery in the housing Yolande Barnes
availability of mortgages but also, most market is inevitable. The question is, Director
especially, the finance that is available to how much more change is needed to 020 7409 8899
house builders and developers. sustain that recovery? n ybarnes@savills.com
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4. Savills Research | Residential Property Focus August 2009
Prime markets
Central London leads recovery
With improved buyer sentiment emanating from the capital, Lucian Cook illustrates
how increased activity in central London influences the UK prime market as a whole.
U
pholding our expectations, prime Table 1: Prime central London projected peak to trough
central London has so far this New forecasts H1 2009 Current Projected
year, led the recovery in values in (as at July 2009) From Peak Peak to Trough
the UK residential market. By the Scenario 1
end of June Savills prime central London Stock levels ease in the Autumn
index showed that values in central and no further significant financial shocks 0.1% -19.8% -25.0%
south west London had increased by
4.3%, their first growth since Autumn 2007. Scenario 2
Further financial shocks further increase City
This growth came largely on the back of a
unemployment eroding current demand 0.1% -19.8% -30.0%
shortage of quality housing combined with
a growing pent-up demand.
Table 2: Prime central London year-to-year growth
Beyond London, where the imbalance
between demand and the supply of New forecasts 2008 2009 2010 2011 2012 2013 2014
(as at July 2009) (Actual)
appropriately priced stock has been less
pronounced, values have stabilised over Scenario 1
the past few months. But in the markets Stock levels ease in the Autumn
most influenced by London, including the no further significant financial shocks -18.3% -3.4% -0.6% 8.0% 13.9% 10.0% 7.0%
commuter strongholds of Surrey and Kent Scenario 2
and established prime areas in the south Further financial shocks further
such as Bath and Winchester, there have increase City unemployment
been small increases in values. eroding current demand -18.3% -6.9% -3.4% 9.1% 16.1% 10.0% 7.0%
While the economic fundamentals
remained largely unchanged, there was a of potential buyers took the view that west London, but this has filtered through
noticeable shift in sentiment among buyers the market represented good value. This into the higher price bands and across a
during the second quarter of 2009. At change in sentiment gathered momentum wider geographical area.
the turn of the year, buyers were waiting as buyer and seller expectations became Therefore, it remains too early in the
for signs that the market was sufficiently more closely aligned and transaction recovery process for improved sentiment to
close to the bottom, but as ‘for sale’ numbers improved as a result. Initially, bring discretionary sellers into the market.
boards became increasingly replaced with activity picked up in the £500,000 to The resultant shortage of property available
‘sale agreed’ boards a growing number £1 million price band, particularly in south has meant that the predominantly cash-led
Graph 1.1 Graph 1.2
Restored demand translates into price growth London leads increase in transactions
Prime central London q/q growth Applicants per Property London All
Viewings per Property Regional All
16 10% 180%
8%
14 160%
Transactions as a % of monthly average
6%
12 140%
4%
10 120%
2%
8 0% 100%
-2%
6 80%
-4%
4 60%
-6%
2 40%
-8%
0 -10% 20%
Q1 05 Q3 05 Q1 06 Q3 06 Q1 07 Q3 07 Q1 08 Q3 08 Q1 09 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09
Source: Savills Source: Savills
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5. Savills Research | Residential Property Focus August 2009
The ripple effect Average Residential Value 2008
n Over £500,000
n £400,000 to £500,000
Fulham and Barnes
Av £ per sq ft 631
Central London
Av £ per sq ft 1,392
Last Quarter 3.42% Last Quarter 4.30%
Following the trends n £300,000 to £400,000
n £250,000 to £300,000
Off peak -24.3% Off peak -19.8%
Overseas buyers 19.3% Overseas buyers 48.6%
across the south n £200,000 to £250,000
n £150,000 to £200,000 Employed in the Employed in the
City of London 65.7% City of London 56.7%
T
n Under £150,000
n All others Employed in London 81.3% Employed in London 61.7%
he ’ripple effect’, whereby
market trends that often start in
prime central London and filter
progressively out into the other Maidenhead
prime and mainstream markets of the
UK, is currently making its way through
the wealth corridor of south west
London and running into Surrey (see Richmond
chart), where a dramatic improvement Staines
in market conditions was reflected in our Bracknell
Kingston upon Thames
end-of-June indices.
Along this corridor average house
prices often exceeded £500,000 even
during the depressed market conditions
of last year. It is however too simplistic Woking
to say that what has occurred in prime
central London will naturally filter Farnborough
through into prime south west London
Aldershot
four weeks later and in another four
Guildford
weeks hit the Surrey Hills. It is important
to take into account the different nature
of these markets and, therefore, who is
buying into them.
The improvement in sentiment in the
prime south west London markets was
Crawley
fuelled by those looking for good-quality
family accommodation and price growth
in Wandsworth, Clapham and Putney Guildford etc Elmbridge Wandsworth etc
Av £ per sq ft 368 Av £ per sq ft 418 Av £ per sq ft 496
has been strongest. Similarly Elmbridge,
Last Quarter 0.7% Last Quarter 4.41% Last Quarter 9.02%
having a similar demand profile but Off peak -16.4% Off peak -19.1% Off peak -19.7%
offering an additional trade-off between Overseas buyers 8.0% Overseas buyers 15.5% Overseas buyers 11.8%
commuting time and cost per square Employed in the Employed in the Employed in the
foot, has shown higher growth than both City of London 17.3% City of London 50.0% City of London 72.8%
Employed in London 54.1% Employed in London 72.6% Employed in London 88.7%
prime central London and Fulham. n
buyers who have returned to the market test will come in the autumn, when more circumstances cause prices to fall further.
have been chasing a shrinking supply of stock is expected to be marketed. This Reduced availability of bonus cash from
stock, and this has intensified the recent will test the actual depth of the current the financial sector, which has traditionally
price increases recorded in the prime improvement in sentiment. accounted for half of all buyers in the prime
London markets. An improvement in the economic London markets, could also play a part.
The prime markets of central and outlook, particularly city employment Irrespective of any short term price
south west London, despite the recent projections, would go some way to movements, we consider recent improved
price increases, remain -19.8% and ensuring the current momentum is carried purchaser activity means we have reached
-20.4% respectively off peak, while the straight through into the autumn and would the first stages of recovery in the prime
prime regional markets are currently at help sustain current prices. markets. Even if these price increases
a similar level, being -19.2% off peak. At the moment, demand continues prove to be temporary they are, as history
These price falls have been enough to to gather momentum and an increased relates, a natural and relevant part of the
maintain the growth in demand during the stability in prime central London residential bumpy bottoming out process. n
early summer months as buyers, whether rents willl add further weight to market
they be investors or owner-occupiers and confidence. This gives rise to the potential Lucian Cook joined the research team
irrespective of whether they are buying for price falls to be less pronounced than in 2007. He is a qualified chartered
in sterling or a foreign currency, remain we have previously envisaged. Conversely, surveyor with over 13 years of professional
conscious of the need to secure value. a worsening economic outlook could lead experience. He has established himself
With the prime markets returning to to an erosion of the recent price growth as a leading commentator on residential
a more seasonal selling pattern, the true by the year end and in more extreme property issues in the press.
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6. Savills Research | Residential Property Focus August 2009
The mainstream market
A new beginning for mainstream?
Recent price increases denote the mainstream housing market has turned a corner
but the key question says Yolande Barnes is, what is around that corner?
S
ince March, the principal monthly rise, however, was just a temporary blip, Mortgage approval figures bear testament
mainstream UK housing indices it took until the first quarter of 1993 before to the fact that this increased demand has
have shown tentative signs of life, the bottom of the trough was reached. been driven largely by cash buyers. In 2006
with growth in values recorded According to Nationwide figures, values and 2007 we estimate that, on average,
during some (but not all) months; a first had fallen by some 20% over three and cash buyers accounted for 23% of the
since 2007. The resulting 2.9% increase a half years. Sustained growth was not a market. In the first quarter of this year they
in the Nationwide house price index in feature of the market until the beginning accounted for nearly 36% of the market,
the second quarter (equivalent to 1.1% of 1996. rising in May (the most current data at the
on a seasonally adjusted basis), has been While recession has played a part in time of going to press) to an estimated
accompanied by a halt to the dramatic both downturns, undoubtedly the current 40% of all purchasers across the UK
decline in housing transactions witnessed situation differs to that of the early 1990s; housing market as a whole.
during 2008. According to Inland Revenue as heavily restricted mortgage availability As a result the balance between supply
data, by May those transactions had rather than affordability has been the and demand has been restored (although
increased by more than 50% from their primary trigger for price falls. This has led both are well below peak levels). The key
nadir in February, even though they to prices falling far more quickly; it took just question is whether price increases are a
remained 32% below those seen for the 16 months for the 20% price falls recorded temporary blip or the start of something
same month a year earlier. by the end of February to occur. more meaningful.
Undeniably, the UK housing market We can be confident that prices really
has turned a corner with a noticeable Rise and fall have reached the bottom, and that growth
improvement in buyer sentiment. However, The severe constraints on accessibility can be sustained over the long term, when
it remains less clear as to what lies around to mortgage finance during the present mortgage availability improves along with
that corner. In order to establish what downturn have contributed to a much more the prospects for economic growth.
the future holds it is essential to look at marked fall in transaction numbers, which This will allow equity-rich buyers to be
what has prompted these recent market have declined from a peak of 160,000 per joined in the market by those whose
improvements and whether the past can month in August 2007 to just 41,000 during property purchase is reliant on a mortgage.
provide any clues. January 2009, with sales restricted to those While we are beginning to see the
In the early 1990s house prices needing to sell. Precious few new sellers re-emergence of a limited number of
decreased by a total of 13.1% over six have brought stock to the market, creating mortgage products with more than 75%
successive quarters, a quarterly rise of a shortage of available property when loan-to-value (LTV), accessibility to these
(1.6%) followed in the spring of 1991. This demand started to improve in the spring. products remains heavily constrained and
Graph 2.1 Graph 2.2
UK house prices follow supply of credit Deposit affordability issues for first time buyers
Quarterly Price Growth (RHS) Home Mover Deposit as % of Income FTB Deposit as % of Income
Supply of Secured Credit (LHS) Home Mover Interest as % of Income FTB Interest as % of Income
20 2% 180% 36%
10 1% 160% 32%
140% 28%
0 0%
Deposit as a % of income
Interest as a % of income
Balance of Opinion
120% 24%
Quarterly Growth
-10 -1%
100% 20%
-20 -2%
80% 16%
-30 -3%
60% 12%
-40 -4%
40% 8%
-50 -5% 20% 4%
-60 -6% 0% 0%
Q2 07 Q4 07 Q2 08 Q4 08 Q2 09 Q1 1980 Q1 1986 Q1 1992 Q1 1998 Q1 2004 Q1 2010
Source: Bank of England, Nationwide Source: CML / Savills
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7. Savills Research | Residential Property Focus August 2009
competitive terms tend to require that ‘It can’t get any worse’ Despite the uncertainty
the buyer finds, at the very least, 25% Among the equity-rich it is no surprise
cash or equity. As prices bottom out, it is that sentiment has improved at the same over employment, because
anticipated that lenders will become more
confident in offering higher LTV ratios
time that forecasts for the economy have
bottomed out. This has allowed those
affordability has dramatically
as their exposure to price falls reduces. taking the view that ‘it can’t get any worse’, over-corrected we believe
However, access to credit, despite low and who have financial security, to now
interest rates, remains constrained make decisions on whether, and at what that any further falls will not
throughout the economy. price level, to buy. be significant.
For those more exposed to the vagaries
Significant developments of the economy, the confidence to buy
The effective closure of the securitisation may take much longer to return. It is credit constraints ease, are central to our
markets, which increasingly underpinned important to note that unemployment forecast of the possibility of several years
mortgage availability through the boom of numbers are not expected to peak until of continued house price growth, once the
1997 to 2007, means that restoring liquidity 2010 and the general consensus is that market conditions allow for a sustained
in credit could be a long and drawn-out significant economic growth will not return improvement in demand across a wider
process. Deposit affordability will therefore until 2011, when mainstream recovery can range of buyers. While five-year fixed rates
remain an issue for many for some time to only follow on. have risen, the indications are that this
come. As shown in Graph 2.2, there is a In such circumstances it is difficult to remains a very realistic assumption, even
significant difference between the change rule out the possibility that prices will fall if lenders’ margins settle at a figure higher
in the affordability of mortgages and further by the end of this year. However, than the long-run average. n
deposits for first-time buyers. because affordability has dramatically
As a result, at the bottom end of the over-corrected we believe any further falls
market there is likely to be a shift in the will not be significant. We stick by our
fundamentals of home ownership. Without forecasts for a total fall not exceeding 25%
developments in shared equity investment from peak to trough.
models, renting will be the only option The assumption that bank base rates
for the deposit starved. This suggests a will remain below 4% until 2013 and that
greater role for institutional investment. lenders’ margins will gradually reduce as
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8. Savills Research | Residential Property Focus August 2009
The mainstream market
Regional Table 3
New forecasts H1 2009 Current Projected
Forecasts (as at July 2009)
UK -1.8%
From Peak
-16.3%
Peak to Trough
-24.9%
Table 3: Regional price falls London -0.6% -15.6% -25.3%
in the mainstream market South East 0.0% -15.7% -24.7%
from peak to trough including South West -2.1% -17.3% -25.4%
H109 falls East 0.2% -16.6% -25.1%
E Midlands -1.9% -16.8% -26.4%
Table 4: Savills annual forecast
for house price growth in the W Midlands -2.5% -16.3% -26.0%
mainstream market North East -5.2% -16.5% -26.2%
North West -3.2% -17.2% -26.0%
Yorks & Humber -1.5% -15.8% -26.0%
Wales -1.4% -13.3% -26.6%
Scotland -3.3% -11.9% -19.6%
Table 4
Projected peak to Forecasts 2008 2009 2010 2011 2012 2013 2014
trough forecasts (as at July 2009) (Actual)
n -18% to -24% UK -14.7% -7.2% -3.1% 1.0% 9.0% 10.0% 8.0%
n -24% to -25% London -15.1% -7.5% -2.6% 2.8% 12.0% 10.0% 9.0%
n -25% to -26% South East -15.4% -6.0% -3.1% 4.9% 14.0% 10.0% 8.0%
n -26% to -28% South West -14.9% -8.0% -2.1% 2.8% 9.0% 10.0% 10.0%
East -16.6% -6.3% -2.1% 2.8% 8.0% 12.0% 12.0%
E Midlands -14.2% -8.7% -3.1% 0.8% 8.0% 12.0% 12.0%
W Midlands -14.0% -9.3% -3.1% 0.8% 6.0% 10.0% 12.0%
North East -11.0% -11.8% -3.1% 0.0% 1.0% 6.0% 8.0%
North West -14.4% -9.9% -2.1% 0.0% 1.0% 6.0% 8.0%
Yorks & Humber -13.6% -9.3% -2.6% 0.8% 2.0% 6.0% 12.0%
Wales -12.1% -11.2% -6.0% 0.8% 6.0% 6.0% 8.0%
Scotland -8.1% -8.1% -2.1% 2.0% 8.0% 12.0% 10.0%
Scotland: Smallest
projected peak to
trough fall of -19.6%
North East: Values start
recovering in 2012 with
growth of 1%
Yorks and Humber: Fall of
-1.5% in H109, growth is
forecast to start in 2011
West Midlands: Growth
forecast for 2011. Projected
peak to trough -26%
The East: Strong growth
of 12% forecast in 2013
and 2014
London: 2.8% growth
forecast for 2011
South West: Growth
forecast above UK
average in 2011
Source: Savills
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9. Savills Research | Residential Property Focus August 2009
Rental market
Signs of change in the rental market
With positive signs re-emerging in the rental market, Marcus Dixon
looks ahead to the lasting legacy the credit crunch will have on the sector.
T
he credit crunch has had a
profound effect on the UK
residential rental market with many
sellers frustrated by the lack of
buyers and opting to find a tenant instead.
According to propertyfinder.com, this has
led to the volume of property available to
rent increasing by more than 3.5 times
since January 2008.
Even with this increase in rental stock
levels, average asking rents across the UK
have not fallen by anything like the rate
seen in capital values at a national level.
While UK house prices are currently 16.5%
down from their peak in 2007, average
rental values, which started to fall in the late
summer of 2008, were just -5.7% off their
peak by June of this year.
On a sector or regional level, the depth
of falls has been largely dependent upon
the capacity of a given market to absorb
the additional stock that has become
available. For example, the mainstream
flat market is now a haven for households
frozen out of ownership because of deposit
affordability, and rents in this sector have,
therefore, fallen by less than the average.
By contrast, in the prime markets of
south east England, where renting is far
less common, a relative deluge of stock has
caused rents to fall by -24.2% according to
our own indices. The extent to which these
different rental markets have absorbed the
increased stock levels has been linked to
the economic drivers that underpin demand
within the rental sector. Even with the increase in the pressure and suggests that, provided
Within prime central London the fall in household earnings are not significantly
demand from corporate tenants has been properties available, average diminished, rental growth will follow.
a key factor in rental falls of -11.7%, while In turn this will help bring cash-rich
the market in the Docklands and Canary
asking rents across the UK investors and institutions back into
Wharf, which is even more reliant on have not fallen by anything the residential investment market, and
demand from the financial services sector, simultaneously help underpin the recovery
has seen rental falls of just under -20%. like the dips seen in capital in capital values.
values at a national level. Ultimately, we expect one consequence
Positive signs of the downturn to be the end of the
Like the sales market there now are signs assumption that renting is an unfashionable
of change in the rental sector. In June, Looking forward, the expectation that necessity, only to be contemplated when
findaproperty.com recorded the first loan-to-value ratios will remain low means buying is an impossibility. n
monthly increase in nationwide asking deposit-shy renters are likely to grow in
rents since August 2008, while in central number, even if government estimates for Marcus Dixon is an Associate Director
London our indices indicate rental values future household formation are overstated of Savills having joined the research
of prime property stabilised. In part, this in the short term. Household numbers department in 2003. Marcus specialises
is due to fall in the number of accidental will continue to grow, putting demand in consultancy projects for developers,
landlords, allowing a balance to be restored on existing rental stock. A decline in the investors and lenders concentrating on the
between supply and demand. levels of new development will add to sales and lettings market across the UK.
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10. Savills Research | Residential Property Focus August 2009
Development land
A two-tier market is established
The distinction between low-risk projects and longer-term development
opportunities has changed the way the market works, as Jim Ward observes.
T
he latest housing statistics suggest In contrast to the greenfield development the brownfield land market in the run-up to
that new residential development land market, urban development land the millennium, forcing a re-think on urban
activity is starting to stabilise. values between 2004 and 2007 have land values within the industry.
However, starts are likely to have effectively remained static for several
fallen to around 70,000 in England by the reasons: the sector was already fully valued Future sales rates
end of 2009, just over 60% less than the as many players had already acquired Despite a lack of growth in the back
peak levels reached in 2006. As residential end of the housing cycle, values of such
turnover continues to build, we expect development land have still fallen by -57%
starts to pick up in 2010, in anticipation of It is encouraging that the since the peak in the UK housing market in
a more significant market recovery in 2011. the Autumn of 2007, which is slightly more
However, during this period and
sales rates of new homes than that seen for greenfield land.
beyond, development and land acquisition have begun to pick up, as Historically, the market for, and value
activity will still be constrained by the of, residential development land is strongly
number of development players that part of the strengthening correlated to homebuilders’ expectations
are well capitalised. The big question is
whether demand for land can increase
of residential markets in of future sales rates. Accordingly it is
encouraging that sales rates of new
to former levels when debt finance is not recent months… homes have begun to pick up, as part of
widely available. And if demand for building the strengthening of residential markets in
land does return, what type will it be? recent months. Cash-rich owner-occupier
In such an environment developers land banks; the costs and complexities buyers, fundamental to improved turnover
are likely to make a distinction between associated with brownfield development in the second hand market, have become
low-risk development projects servicing an were beginning to be more fully understood equally important in the new homes market.
identifiable housing requirement and those and acknowledged; and the capital- Their activity has been concentrated on
where viability has been deeply undermined intensive, longer-term promotion and acquiring fully completed, fully discounted
because of the holes that the downturn has preparation costs associated with this type schemes of a good design and high
exposed in some development models. of land were beginning to take its toll on the specification. This is in stark contrast to the
The two-tier market, which planted its roots development industry. off-plan, premium purchases made by buy-
prior to the downturn, is set to become This has discouraged the large, up-front to-let investors at the height of the boom.
more entrenched over this period. speculative payments that were a feature of Where the type of stock built for these
Graph 3.1 Graph 3.2
Urban land was already discounted before the crunch Values reflect housebuilder expectations of sales
Greenfield Greenfield land
Urban Developer’s sales expectations
180 100%
160 80%
60% 100
140
Index (value growth q/q)
Balance of opinion
40%
Value growth y/y
120
50
20%
100
0% 0
80
-20%
-50
60
-40%
40 -60% -100
01
02
02
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03
04
04
05
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07
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08
09
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96
99
01
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19
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20
4
2
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2
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Q
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Source: Savills Research Source: Savills Research / Nationwide
10 savills

11. Savills Research | Residential Property Focus August 2009
Identifying
opportunities
Unlocking the
potential in the land
development market
1 Strategic Land
Turning bulk ‘strategic’ land into
fully serviced ‘enabled’ land, suitable
for sale to a cash-flow driven
housebuilder.
2 Understanding Planning
and Policy
A shift away from the old attritional
S106 structures will create
opportunities for the most skilled
and experienced operators, pulling
public sector funding into the land
enabling process.
3 Equity Funding of Stalled Sites
Alongside public sector funding,
private equity funding could be
used to unlock development as the
market recovers by acquiring stock
(in the markets best placed for rental
buyers still remains on the market, it is Cash-rich owner-occupier and capital growth) and thereby
often dependent on a different type of forward funding through off-plan,
investor purchaser. buyers, fundamental to bulk acquisition.
Symptomatic of the underlying
turnover in the second hand
demand for such a product in a mortgage
constrained world is the fact that less well
located, designed and diversified schemes
market, have also become 4 Long Term Place Making
Higher-cost sites in lower
demand markets will take more
are being bought in bulk at significant equally important in the new time to recover to viability within
discounts based on income yields in homes market the conventional land trader
excess of 8%. Correspondingly, with this development model, and longer
part of the market dependent on vulture still for peak values to be restored.
buyers, the effective eradication of any new The regional picture will vary around this, These sites will benefit most from
build premium has been compounded, but some of the most significant variations a longer term place making
and new build stock is trading at discounts will be at a local level. High value, popular, approach and only players with
which varies anywhere between -25% to low supply locations will be in high demand long-term, equity funding will be
-40% from peak. from risk averse developers and their successful here. n
As a result of the freeing up of the funders. These are likely to see an earlier
market for finished product, there are now and more marked recovery than locations
signs of sporadic land trading activity with a large amount of supply, even if they
but only where vendor and purchaser are in the south of England. n
expectations are aligned around lower
values. Reflective of the type of new build Jim Ward is Director of Savills Residential
housing which is selling in greater volumes Research with 19 years experience.
and at lower discounts, this land trading He specialises in market consultancy
has tended to be of high quality, small (less projects for developers, investors, lenders
than 50 units), often freehold sites in high and government organisations. These
demand locations with deliverable planning projects tend to focus on market capacity
permissions and phased payment terms. and potential on a local level.
Equally the market value of such small
sites and serviced plots is likely to recover
more quickly than that for bulk land.
savills 11

12. Savills Research | Residential Property Focus August 2009
Coastal property
A national pastime
From ultra prime destinations to faded seaside resorts, house prices are as varied
as the coastline itself. But what does the future hold? Lucian Cook investigates.
F
rom faded Victorian seaside Council tax data suggests that in most of However, we expect the top tier of prime
resorts to the developing coastal the popular local authorities second home locations to maintain an average house
playgrounds of affluent second ownership rates are currently between 9% price premium of at least 40% in the future
home owners and those who and 10%. However, figures at a ward level as they continue to attract equity in a
have bought into a better quality of life, show second home levels are typically mortgage-constrained market place. These
settlements along the coastline of England nearer 40% within the highly sought after locations cover a wider geographical area
and Wales are as varied as the coastline locations, such as Salcombe and Rock, bringing in the rural Northumberland coast,
itself. Over the past decade, the differing where wealthy buyers have snapped up the Gower Peninsula and parts of the Isle
demands on the coastline, from where is the limited supply of housing, creating of Wight.
fashionable and where is not, has led to an something of a snowball effect.
extraordinary range in house price values. The extremely localised nature of these Traditional seaside
On average house prices in the coastal ultra prime locations means Land Registry As we enter the first stages of recovery
postcodes of England and Wales are within data fails to capture some of the smallest, the coastal locations which are most likely
5% of their county average. Yet prices most exclusive locations such as Helford to lead the process will be those with a
within coastal cities, traditional seaside Village and Coverack. Nonetheless, the good balance in demand between those
resorts and most notably other primarily list clearly demonstrates how ultra prime relocating to an area full time and second
industrial, urban coastal centres carrying locations are currently heavily concentrated home buyers. As a result we would expect
high levels of deprivation, all average less in Cornwall, parts of Devon (the South locations such as Brighton and Hove,
than prices within the counties in which Hams), Dorset (Sandbanks) and parts of Chichester and Topsham to be among the
they are located (see Graph 4.1). the north Norfolk and Suffolk coast. first to show signs of a recovery.
In stark contrast, our research High city bonuses and ten years of The fate of house prices within the
has identified 14 ‘ultra prime’ coastal significant wealth creation has propelled mainstream traditional seaside resorts is
postcodes (see Table 5), where house 11 out of the 14 ultra prime locations into far more difficult to predict as prices within
prices are almost twice the county average. this category during the past decade. The these locations vary considerably. The
Their appeal to a pool of wealthy buyers likelihood of a new culture of reduced top 25% in terms of having the highest
means that prices within these locations bonuses and the fallout from the recession prices relative to the county average, such
increased by some 295% on average over are likely to mean that a repeat of the as Boscombe, Bournemouth, Bude and
the past 10 years, even taking into account explosion of ultra prime locations is unlikely Whitstable currently show an average
the downturn in market conditions. during the next 10 years. house price premium of 14%. In the bottom
25% of such locations, which includes
Hastings, East Sussex, Clacton-on-Sea,
Essex and Scarborough, North Yorkshire,
Graph 4.1 average prices are 29% less than their
Coastal house prices vs county average county average.
While such locations have been the
120% Simple average target of regeneration schemes, such
Index of multiple
as the £45m Sea Change programme
100%
deprivation vs administered by CABE, issues of physical
coastal average
80%
and social isolation will suppress house
Mix adjusted prices as long as problems associated
average
60% with low wages and low skilled seasonal
employment are combined with an out-
40%
migration of young people.
20%
To revive housing markets in these
areas new sources of equity need to be
0% attracted, but as English Heritage stated
it in its 2007 document An Asset and
-20%
a Challenge: Heritage Regeneration in
-40%
Coastal Towns in England, “long term
decline in some areas has created negative
-60% images of many coastal towns which are
Ultra Prime Rural Other Coastal Traditional Industrial
prime coastal coastline coastal city seaside urban
deeply entrenched and can be challenging
coastal town resort coastline to reverse.” n
Source: Land Reg / DCLG
12 savills

13. Savills Research | Residential Property Focus August 2009
Table 5
The UK’s top 14 ultra prime coastal locations by average house price
Postcode Location Average % of county average 10-year price
house price Unadjusted Adjusted growth
BH13 7 Sandbanks 812,968 281% 332% 185%
PL28 8 Padstow / St Merryn 548,977 240% 213% 493%
TQ8 8 Salcombe 519,463 217% 242% 367%
TR2 5 St Mawes 463,129 202% 194% 356%
BH13 6 Branksome 459,159 159% 214% 202%
TQ7 4 Bigbury on Sea 433,362 181% 197% 356%
PL27 6 Rock / Polzeath 414,193 181% 161% 316%
IP15 5 Aldeburgh 389,878 194% 192% 191%
TQ6 9 Dartmouth 382,671 160% 177% 362%
NR25 7 Cley Next The Sea 376,991 203% 200% 231%
PL29 3 Port Isaac 360,015 157% 152% 262%
IP18 6 Southwold 359,040 179% 203% 232%
PL23 1 Fowey 351,894 154% 160% 258%
NR23 1 Wells Next The Sea 316,945 171% 178% 313%
Average 442,049 191% 201% 295%
Source: Savills Research / Land Registry
Case study on Cornwall
P
roperties closest to the coastline
command higher values than those
What is the impact on property value further away and the difference a sea
view can make is significant.
based on the proximity to the coast? Our research* shows that properties located
within 100m of the coastline (and therefore most
likely to benefit from sea views), carry an average
Graph 4.2
premium of 61% over those properties located
Cornwall: average percentage premium vs distance from coast
more than a 1km from the coast. The premium
Within 100m 100m - 250m 250m - 500m 500m - 1km often continues to be more than 50% for properties
100% between 100m and 250m of the coast, and
although it tapers off beyond this distance there
90%
remains an average premium of 31% within 1km
80% of the coast.
70% While there are significant variations around the
average, depending on property type, location,
60%
and privacy, the premiums are generally highest
50% for detached properties. In 2008 detached houses
40%
sold within 100m of the Cornish coastline averaged
£525,168 in value while those between 100m and
30%
250m from the coast averaged £460,585. This
20% reflected premiums of as much as 85% and 63%
10%
respectively over comparable inland properties. n
0% *Based on analysis of just under 12,000 sales,
Detached Semi-detached Terraced Flat
which took place in Cornwall during 2008.
Source: Land Registry / Savills
savills 13

14. Savills Research | The Residential Property Focus August 2009
Summary
After the dramatic impact of the credit crunch, the
residential property market has been irrevocably altered.
n The property market has been rates, an improvement in the accessibility n Cash-rich owner-occupier buyers have
irrevocably changed by the credit crunch of mortgage finance and a recovery in not just focussed their attentions on
but whatever shape it takes in the future economic growth, factors which will enable second hand property, but also identified
the demand / supply imbalance makes a mortgage-dependent buyers to join the opportunities in the new homes market,
recovery inevitable. Those best placed to equity-rich. concentrating on acquiring fully completed,
take advantage of this recovery are those fully discounted schemes of a good design
investors and developers who entered the n As predicted, prime central London has and high specification. This has boosted
downturn with low debt levels, special skills so far led the recovery in UK house prices sales rates and in turn led to signs of
and access to equity. These will become where values rose by 4.3% in the three sporadic land trading activity for high
the new and successful players in the months to the end of June 2009. quality, small (less than 50 units), often
residential property market of the future. This positive trend has begun to filter freehold sites in high demand locations
through into the markets outside the with deliverable planning permissions and
n We cannot rule out further price falls in Capital, where its influence is strongest, phased payment terms.
the mainstream market this year. However, with small price rises seen in the commuter
because affordability has dramatically strongholds of Surrey and Kent and some
over-corrected, further falls will not be as of the established prime locations in the
significant. We, therefore, stand by our south such as Bath and Winchester.
forecasts that total falls from peak will not
exceed 25% peak, but sustained house
price growth will require low interest
For further
information
please contact
a member of
Savills research
team…
Yolande Barnes Lucian Cook Jim Ward Jacqui Daly
Director Director Director Director
020 7409 8899 020 7016 3837 020 7409 8841 020 7016 3779
ybarnes@savills.com lcook@savills.com jward@savills.com jdaly@savills.com
Marcus Dixon Carrie Scrivener-Leask Neal Hudson Faisal Choudhry
Associate Director Associate Director Associate Associate
020 7409 5930 020 7409 8744 020 7409 8865 0141 222 5880
mdixon@savills.com csleask@savills.com nhudson@savills.com fchoudhry@savills.com
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14 savills

15. Research publications
Savills Research is a team of property and research professionals
dedicated to understanding global real estate markets. Our aim is to
use our knowledge to help you to add value to your property interests.
Spotlight on… Spotlight on… Scotland residential
The future of Student housing review 2009
UK residential
development land Spotlight on ‘Student Scotland has a
Housing’ presents world-wide reputation
Scarce debt-funding a view on the as a country of
has changed the performance of the outstanding natural
development land student housing beauty, and Savills is
market, as emphasis sector in the current fortunate enough to
moves from funding economic climate and be involved in the sales
models based on the key fundamentals of many of Scotland’s
short-term returns to which currently finest properties.
those based on long- underpin the sector.
term income-streams.
Spotlight on… Spotlight on… Market in minutes
Prime rental market International Prime residential
farmland markets markets in London
The withdrawal of 2009 and GB
mortgage finance
has been a significant With an industry that The recurring theme
factor in house price is well placed to across the prime
falls, but conversely weather the current residential markets
resulted in more recession, we believe is that the market
activity in the rental that farmland values has entered what is
market; as renting on a global basis believed will prove to
became preferential for will remain robust be a bumpy recovery.
many house movers. during the current
economic cycle.
Sustainability Office occupier Shopping centre
briefing 2009 survey 2009 and high street
bulletin Q2 2009
What are the potential The recession has
benefits of feed-in meant that occupier For retailers and
tariffs for landlords focus has returned landlords, the ability
and investors? to the property to generate capital
fundamentals of cost, is a genuine point of
quality and location. differentation from
the competition.
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