Contributing more than £5bn to England and Wales’s prime property market in 2017, new-build developments are transforming the current market, creating opportunities for high net worth individuals (HNWIs) to diversify their investments or expand their property portfolios.
According to Investec Private Bank’s Prime property hotspots report, the total value of the prime property market in England and Wales reached £32bn in 2017, an increase of almost £2bn from 2016. The UK market is projected to rise even further in 2018, by 17% to £37.5bn.
Helping to drive this increase is new-build development – and not just in the markets traditionally considered prime hotspots. With £6.4bn projected to be generated from the sale of prime new builds in 2018, significant pockets of investment are emerging in East and South London, as well as Manchester, Cambridge and beyond.
“High net worth investors recognise that the boundaries of prime property hotspots are becoming ever more elastic,” observes Ryan Tholet, Head of Investec Private Bank. “It’s fascinating to see this realised in the strong market growth we are seeing in areas such as Manchester, for example.
“For those looking to diversify investments or expand their property portfolios, new-build growth is certainly an area which is worth keeping an eye on,” Tholet explains. “In the long term, we will be monitoring how factors such as prime new builds impact the fundamental dynamics in the prime property market.”
Prime Central London remains strong
That’s not to say areas historically renowned for their abundance of prime property offerings (classed as properties with a value of at least £1m), such as London’s Kensington & Chelsea, Mayfair and Knightsbridge, are showing any signs of a slowdown.
For high net worth individuals looking to diversify investments or expand their property portfolios, new-build growth is certainly an area which is worth keeping an eye on.
Indeed, while overall dynamics are shifting, Kensington & Chelsea, Hammersmith & Fulham and Wandsworth are still seeing growth.
“It’s encouraging to see that London’s traditional prime property markets show few signs of bottoming out,” Tholet said. “The boroughs of Westminster and Kensington & Chelsea alone, for example, contributed £8.2bn, of the England and Wales total of £32bn, in property sales in 2017.”
Development stretching outward
So what of these aforementioned shifts? The research findings reveal a notable diversification in the market: outward towards East and South London, Manchester and Cambridge, driven in part by new builds.
Previously overlooked areas of London, or areas where a prime market was nearly non-existent, such as Tower Hamlets, Lambeth, Lewisham, Newham and Waltham Forest, are now on the map, in some cases recording impressive rates of sales growth. In Tower Hamlets, for example, 60% of prime sales in 2017 were new builds. In Newham, this figure was 56%, and in Southwark 38%. Developments such as Goodman’s Fields in Tower Hamlets, One Tower Bridge in Southwark and Nine Elms in Lambeth all ranked among the largest developments in 2017 by number of sales.
And further projects are in the pipeline. Tower Hamlets is on track to become London’s largest deliverer of new housing, with the Poplar Riverside Housing Zone expected to create 6,000 to 9,000 new properties by 2020.
Connectivity is key
Moving further outward, the Crossrail effect is still a factor, attracting development in the South East despite recent news of delays in completion. New builds in South Bucks made up 20% of prime property sales in 2017, with this percentage rising to 41% in Broxbourne – a sign that up-and-coming commuter hotspots are coming to the fore in anticipation of the opening of the Elizabeth line.
“It’s no surprise that the new builds that are driving the expansion of the UK prime property market overlap with areas that are experiencing, or are due to experience, high levels of investment – from developments such as Crossrail, for example,” says Tholet.
Up and comers outside London
In the East, the burgeoning tech industry, including software, electronics and biotechnology at Silicon Fen – also known as the Cambridge Cluster – continues to fuel Cambridge’s prime property market, with values here projected to increase by around 37% in 2018.
And in the Greater Manchester area, prime property values increased by 22% in 2017, to £229m, with the market expected to grow yet again in 2018, by a further 25%. Manchester’s renaissance has received a boost from Trafford, in particular, which has demonstrated strong house price growth over recent years and boasts long-term potential.
Interestingly, according to Investec Private Bank’s survey, respondents say they would be more likely to purchase a prime property in Manchester than in London.
Quality counts for buyers
One final takeaway from the research is that ‘location, location, location’ is still the rule for HNWIs in identifying prime property, but they also value size, as well as transport links and unique features that help a property to stand out.
Over three-quarters of HNWIs see a ‘desirable location’ as more important than it was 10 years ago, while around 68% believe being in a ‘trendy or up-and-coming area’ is more important than it was a decade ago.
And while location is still of paramount importance, buyers – with an eye to contemporary living habits – are also seeking larger living spaces, energy efficiency and faster broadband.
With new hotspots emerging, and new builds helping to drive up values (the average prime new-build property sold for £2m in 2017, 14% higher than the average for older prime properties), the market in the UK is certainly changing. All food for thought for prospective investors.
Editor’s note: Forecasts for the prime property market in 2018 are based on early prime property sales data for the first half of 2018. This compared the performance and value of the market in the first half of 2018 to the equivalent time period in 2017, and then extrapolated any differences for the whole of 2018 based on the whole-year data from 2017.