Acuitus’s Peter Cunliffe looks at why through a combination of more political certainty, shortage of space in certain locations and increased enthusiasm on the part of lenders, development is coming back onto the property agenda.
The latest Deloitte Crane Survey notes that that nearly 2m sq ft of office space was delivered to market across the cities of Belfast, Birmingham, Leeds and Manchester last year – and a further 4.3m sq ft is currently under construction. Meanwhile, the burgeoning build-to-rent residential is spawning major schemes across the country. So it’s not just big projects in London that are generating interest.
The potential for development is now also trending in the auction room. At our last few sales, we’ve seen a number of development opportunities provoke very competitive bidding. Last October, we sold a development opportunity in Ware, Hertfordshire comprising as parade of shops with flats above for £3.05m at a yield of 1.3%. Planning permission was granted for redevelopment to create seven retail units with 32 residential units.
Earlier last year, we sold 87-89 High Street, Dorking which had planning consent for an extension and change of use to residential use above a Barclays Bank for £2.35m.
At our next auction on March 26th, we’re offering a site next to East Finchley underground station which has planning consent for 24 flats and 5,164 sq ft of offices. The site is adjacent to the UK head office of fast food giant, McDonald’s, and it’s being offered with a guide price of £4.75m.
Any buyer will, of course, most likely be looking to finance the cost of development and they will have a much more positive reception from lenders.
For much of last year, getting finance for London residential development was a virtual ‘no go’ for capital value units above £800,000, but there is now renewed appetite for the sector. Loan costs are reducing and there are products out there that can offer, for example, 70% loan-to-cost at 3.9% or 90% LTC at 7%. At this level of funding developers are able to maximise their equity.
The latest property cycle has been notable for the relatively muted level of demand but it looks like that may be changing.