RESIDENTIAL RESEARCH

BIRMINGHAM REPORT SPRING 2015

ECONOMIC FUNDAMENTALS THE “BUSINESS” CASE HOUSING SUPPLY AND DEMAND BUILDING THE FUTURE

The UK economy bounced back strongly last year, delivering the FIGURE 2 Annual economic output 2014 highest level of growth seen in any country in the G8 nations. As the Eurozone struggles with more fiscal uncertainty, the UK is seeing job creation and starting to see wage growth, all in an ultra-low interest rate environment. £16.8bn “Birmingham’s mix of regeneration, re-development The country’s economic recovery from and job creation, as well as the financial crisis and resulting recession Estonia the relatively lower entry price has started to spread to the regions, and Birmingham, the UK’s second-biggest city for property, means that its £16.1bn by population, has contributed with Iceland draw to homebuyers and economic output from the city outpacing investors will likely continue to the average seen across the UK in both £9.8bn grow in the coming years.” 2013 and 2014 (figure 1). This is just one of the signs that GRÁINNE GILMORE Birmingham is enjoying a post-recession Source: UN Head of UK Residential Research renaissance, not only in terms of jobs and business growth, but also in the fabric of At present, the level of new residential the city. The Big City Plan, laid out in 2010, stock coming to the market, especially in aims to ease the stranglehold that the City Centre, is limited. Our analysis of infrastructure such as key roads are future housing supply in Birmingham placing around the city centre, thereby suggests that supply will pick up from opening up large parts of the city. next year, but that there will still be a notable annual shortfall in our forecast The activity in Birmingham, in economic period to 2019 (figure 8). terms as well as public realm planning, is also helping feed the strong demand for Birmingham’s mix of regeneration, housing, not only from the domestic re-development and job creation, as well population within Birmingham, but also as the relatively lower entry price for from those from and the South property, means that its draw to East looking to take advantage of the price homebuyers and investors is likely to differential on offer. continue to grow in the coming years.

FIGURE 1 FIGURE 3 Total annual output (GVA) Birmingham: Output by industry GVA, £bn

7% UK WEST MIDLANDS 5.0 FINANCE & INSURANCE 6% BIRMINGHAM PROFESSIONAL & OTHER PRIVATE SERVICES 4.5 PUBLIC SERVICES FORECAST 5% 4.0

4% 3.5

3% 3.0 £ billions 2% 2.5

2.0 1% 1.5 0% 1.0 -1%

2010 2011 2012 2013 2014 2015 2016 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Experian Source: Experian

2 BIRMINGHAM 2015 RESIDENTIAL RESEARCH

Economic Service industries outstripped that of its “Intense competition, Public Sector by an estimated £133 million, big price tags and fundamentals contributing around £4.4bn to the city’s economy last year. In fact this segment of low yields in London In terms of economic growth, Birmingham the Birmingham economy has been the star has outperformed the UK and the wider are forcing investors, performer since the recession, growing by West Midlands region for the past two years. nearly 30% since 2009 (figure 3). both domestic and Annual Gross Value Added, a measure of international, to widen economic activity, rose by 2.3% in 2013 Evidence of the sustained recovery in the and 3.3% in 2014, compared with 1.8% private sector can also be seen by net their horizons. Turning and 2.9% respectively across the UK. business creation data – in 2009 and 2010 their back on the capital The pace of economic growth in Birmingham the city lost more businesses than it gained, for regional cities that is expected to average a more moderate but in 2013 over 1,600 more companies 2.1% per year over the next five years were created than folded and provisional offer less competition outperforming the wider West Midlands figures for 2014 suggest a similarly large and higher returns, average (figure 1). net gain (figure 4). [in particular] well-run With a Gross Value Added (GVA), a measure major cities with good of economic output, in 2014 of nearly FIGURE 4 local government; £16.8bn, Birmingham’s total is currently Birmingham: Net Business Creation 2009 - 2014 comparable to that of Estonia, which had a leadership is a key total output of £16.1bn in 2013, and some 2,000 factor impacting £7bn more than Iceland. business prospects. Brimingham’s strong recovery from the 1,500 ESTIMATE This includes cities UK recession has seen employment rise such as Birmingham.” across the city over the last few years, once 1,000 again outperforming the UK and regional Source: PwC “Emerging 500 annual growth rates in 2013 and 2014. Trends in Real Estate” – Employment is set to continue to rise 2015 annually by an average of 1% across the 0 next five years. -500

The surprise driver behind this economic and lost Balance of businesses created resurgence has been the private sector – -1,000 for the first time since 2001, the output from 2009 2010 2011 2012 2013 2014 Birmingham’s Professional & Other Private Source: ONS 2013 Business Demography

CASE STUDY: DEUTSCHE BANK IN BIRMINGHAM

are, yet our teams need to be able to travel those working here can have a higher to and from there quickly if needed. standard of living than those on the same salary in the capital. Paul Anderson “Birmingham was an easy choice when it Head of Deutsche Bank came to picking a location outside “In terms of the lifestyle they Birmingham London. The key factor is the labour can enjoy, the city is almost market here, there’s a highly qualified unrecognisable compared to 15 Deutsche Bank has expanded its talent base – with skills that are highly years ago, it is a lively and exciting presence in Birmingham, with front transferable. We have been able to recruit place to be. Alternatively, our staff and back office staff all based in the highest calibre teams for compliance, can choose to live in the countryside, in the business district. technology and professional services. and still be within a reasonable Paul Anderson, Head of Deutsche “For our graduate scheme we have commute of the office. Bank Birmingham, shares the reasons access to many smart young graduates “We can’t discount the proximity to behind the bank’s move, and explains from the major universities in the area. London however, and our staff can the attraction of Birmingham for a We find that these graduates value the be there within two hours, and large banking business. opportunity to have a banking career travelling there and back in a day is without having to move to London. “We have many roles within the Bank not arduous. We are very pleased which do not need to be based in “The disparity in the cost of living between with our choice of Birmingham as London, where our UK headquarters London and Birmingham means that a location.”

3 FIGURE 5 Changing face of

Private sector investment in the city is There was particularly strong occupier FIGURE 6 becoming mainstream, with a report on activity in Birmingham city centre in Birmingham office take-up, by emerging trends in real estate, from PwC, the second half of last year, with take-up sector H2 2014 ranking the city the 6th best in Europe for in Q4 alone totalling 341,164 sq ft, more

investment, four places above London, than doubling the preceding three quarters %

% and 7th for development. (figure 7).

16 16 16 16 There are increasing numbers of examples Total take-up for 2014 was 713,460 sq ft, % % % % of corporate investment in the city. up 7% year-on-year. Activity in 10 10 Deutsche Bank made a landmark decision these markets is being driven by the in 2013 to further expand their operations public sector, professional services and in Birmingham renting an additional banking & insurance sectors, which 4% 4% building on Brindleyplace and relocating accounted for 72% of total activity in the around 2,000 staff from London to create a second half of 2014. 3% 3% ‘HQ Campus’ (interview page 3). The buoyancy of the office market, as well 3% 3% 45% 45% More recently HS2 Ltd, the vehicle behind as the investment confidence in the construction of the new high-speed 2 2 Birmingham is perhaps captured by the % % 1 1 rail line between London and Birmingham fact that construction work has begun on % % and the North of , rented nearly Birmingham’s most anticipated new PUBLIC SECTOR PUBLIC SECTOR 100,000 sq ft of office space. The decision PROFESSIONAL SERVICES PROFESSIONAL SERVICES commercial development scheme – the to base the headquarters of HS2 in FINANCE / BANKING FINANCE / BANKING transformation of 17 acres at Paradise TMT TMT Birmingham marks a further vote of Circus in the heart of the city centre. CHARITIES CHARITIES confidence in the city. CONSTRUCTION / ENGINEERING CONSTRUCTION / ENGINEERING RETAIL / DISTRIBUTION RETAIL / DISTRIBUTION The £500m scheme is aimed at revitalising OTHER OTHER this part of Birmingham; creating a PHARMA / HEALTHCARE PHARMA / HEALTHCARE The “Business” Case substantial number of jobs, office and retail The strength of Birmingham’s economy is space and helping to attract significant Source: Knight Frank Research echoed in the activity in its office market. commercial investment.

4

%

16

% 16

45% 10%

4 % 3

% 3

%

2

1

% %

PUBLIC SECTOR PROFESSIONAL SERVICES FINANCE / BANKING TMT CHARITIES CONSTRUCTION / ENGINEERING RETAIL / DISTRIBUTION OTHER PHARMA / HEALTHCARE BIRMINGHAM 2015 RESIDENTIAL RESEARCH

connections at the heart of the city will play Infrastructure boost FIGURE 7 a key part in providing a long-term boost to Sharp rise in Birmingham office Birmingham is well positioned to attract residents and business alike. take-up By grade (sq ft) further investment – with the 20-year ‘Big Opening up the city centre will bring City Plan’ launched in 2010 aiming to improved pedestrian and Metro access 350,000 completely revitalise and expand the city GRADE A to the central business and retail GRADE B centre. The plan aims to deliver change in districts, particularly from the Jewellery 300,000 GRADE C the city centre, by breaking up the restrictive Quarter – the city’s most vibrant post-war urban environment, such as major residential neighbourhood. 250,000 roads cutting through residential and commercial areas. This will expand the city Recent residential development has focused 200,000 centre by 25% to cover 800 hectares, on rejuvenating the canalside area to the including far-reaching improvements to the South West of the city Centre. The catalyst 10 year 150,000 average urban environment and connectivity. for regeneration in this area began with the Mailbox development which was completed Key infrastructure and transport projects 100,000 in the early 2000s. More recently, The Cube have been adding to this sense of is the most notable residential scheme of revitalisation and transformation. 50,000 the past five years. However focus is now Increased connectivity is therefore at the switching to the opportunities offered by 0 centre of the plans for Birmingham’s future the , with a number of Q2-Q4 Q1-Q4 Q1-Q4 Q1-Q4 – better links nationally, regionally and new developments and Victorian 2011 2012 2013 2014 internationally. The improved local warehouse refurbishments in the pipeline. Source: Knight Frank Research

Better connections for Birmingham

• Birmingham International Airport offers direct access to over 100 destinations and is only a 9 minute train journey from the city centre. However the creation of a £40 million runway extension last year created the potential for expanding the list of long-haul destinations. Birmingham now hosts the only direct UK to China air route outside London. • American Airlines also announced new direct flights from New York to Birmingham would begin in May 2015 – a decision which may be partly based on the West Midland region having the largest trade surplus with North America of any UK region, thanks in part to AIRPORT global brands such as JLR, JCB, Cadbury and Kraft trading both locally and in the US.

• A key plank of the long term vision of Sir Albert Bore, head of , has been to open up the city centre and break the ‘concrete collar’ imposed on the central business district by the 1960’s ring roads. Phase One of the extension will extend the current Metro Line from its current terminus at Snow Hill station to Birmingham New Street by the end of 2015 (see map). Funding for a further phase to extend the line to to tie in with the Paradise Circus re-development has also been approved with the long-term goal being for the route to run to Five Ways and/or Edgbaston. METRO LINE • A further Metro extension eastwards to the future HS2 station at Curzon Street and beyond, ultimately to and perhaps even Coventry is also in the pipeline, EXTENSION with the Curzon Street extension slated for completion by around 2020.

• This high speed rail link will cut the travel time between London and Birmingham from 1hr 21 minutes to 49 minutes. Phase 1 will connect London and Birmingham, as well as going slightly further north to Hansacre, while Phase 2 will have two “legs” going further north, one to Manchester and one to Leeds via Nottingham and Sheffield. The construction of the line alone, with the rail links and infrastructure around it, could create 22,000 jobs in the West Midlands and further Birmingham’s position as the regional hub for the heart of England. The HS2 Paving Act, authorising expenditure in preparation for the creation of the new rail network, received Royal Asset in November 2014. A final decision on the exact route is expected after the General Election in 2015 with the HS2 Hybrid Bill, currently at the Commons Select Committee stage, following soon after. • According to a KMPG / DfT 2013 Regional Impact Study, the West Midlands metropolitan region stands to see direct productivity gains valued at between £1.5 billion and £3.1 billion per year; equivalent to between a 2.1% and 4.2% increase in total local economic output HS2 once HS2 is ready in 2037.

5 Housing demand The shortage of stock in the city has been and supply reflected in price growth in recent years, BIRMINGHAM especially as buyer confidence and Population projections from the ONS interest started to rise in the wake of the Education suggest that Birmingham will see organic financial crisis. Average residential Birmingham is home to five population growth of 3.6% between 2015 property prices rose by 7% between the universities and over 50,000 undergraduate and 2020; equating to just under 40,000 students, of which more than 6,000 are beginning of 2013 and the end of last from overseas. Two of its schools are new residents over the next five years. year according to the latest data from the ranked among the top 15 in the country Birmingham is forecast to see a growth in Land Registry. in terms of A-Level results. Some 38 the number of households from 422,022 in secondary schools in the city are classed The competition to live in the centre of 2014 to 440,529 by 2019 – a rise of around as “Outstanding” by Ofsted. town, coupled with a lack of stock 18,500 households. This equates to an availability due to lack of development average annual increase of approx. 3,680 activity in the wake of the downturn, is Culture households each year. Birmingham Hippodrome is the most also reflected in rental prices, with popular theatre in the UK with over 520,000 By looking at all the current residential average rents carrying a premium, as visitors every year. The city also has more planning consents across Birmingham, shown in figure 11. than 500,000 works of art in one square mile using construction timing estimates This chimes with the findings of our with Birmingham Museum & Art Gallery provided by Glenigan, together with the home to the world’s largest Pre-Raphaelite assumptions that; all sites with planning Tenant Survey, the largest survey of collection, including some 2000 art works. consent as at February 2015 will be its kind ever conducted in the UK. Its music and event venues such as the We asked 3,000 tenants across the UK National Indoor Arena, LG Arena and realised; that the units are made available about their choices when deciding on a Symphony Hall are also world-class. for sale halfway through the construction process, and; an average monthly sales rental property. Birmingham has the most Michelin starred rate of 3.5% across each site, we have restaurants of any city in the UK outside It showed that while affordability was the attempted to illustrate the annual supply London, with four restaurants boasting key priority, proximity to transport and of new homes versus the predicted 1 star. place of work was particularly important growth in households. to younger tenants. In fact, the results Recreation We must note that it is hard to second- showed that this was particularly true for The city is in the top three most guess the details how and when the West Midlands. visited places to shop in the UK. The Bullring developers will choose to bring forward shopping centre alone is the size of 26 their schemes, which can affect supply Some 40% of those living in the West football pitches. Over 400 specialist timings. However, our forecast shows that Midlands said they would choose a businesses in the 250 year old Jewellery studio flat if the rent was affordable and if Quarter are responsible for manufacturing across Birmingham as a whole, the it was located in a “perfect” central around 40% of the UK’s jewellery. expected supply of new homes is set to fall short of the potential growth in location, this is higher than the wider Birmingham is also one of the greenest cities in the UK with around 600 designated parks households by an average of nearly 2,000 country average of 36%. This rises to and open spaces, including the Botanical a year between 2015 and 2019. 42% for those aged 35 to 44. Gardens in Edgbaston that first opened in 1832. Famously the city also has more miles of canal than Venice. FIGURE 9 Estimated supply/demand dynamic 2015 – 2019 Birmingham Housing Supply vs Demand

FIGURE 8 Birmingham residential sales Monthly Sales 2007-2014 volumes 4,000 AFFORDABLE 2,000 3,500 AVERAGE ANNUAL FORECAST DEMAND PRIVATE ANNUAL HOUSEHOLD GROWTH

3,000 DEMAND ANNUAL ESTIMATED SUPPLY TO MARKET 1,500 2,500

AVERAGE ANNUAL 2,000 FORECAST SUPPLY 1,000 Total demand 1,500

500 1,000

500 SUPPLY

0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Land Registry Source: ONS 2011-based Subnational HouseholdFORECAST Growth Projections, Glenigan, Knight Frank Residential Research 4000

3500 6 3000

2500 55,000 AFFORDABLE PRIVATE 50,000 2000 Total demand 45,000 1500

40,000 DEMAND 1000 35,000 Private demand AVERAGE ANNUAL FORECAST SUPPLY 30,000 500

25,000 0 20,000 15,000 10,000 SUPPLY 5,000 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 FORECAST BIRMINGHAM 2015 RESIDENTIAL RESEARCH

FIGURE 10 PRS: Tenant priorities – West Midlands

100% ALL 90% 25-34 80% 35-44

70%

60% “The Birmingham residential 50% market has matured over 40% the last eight years. As a consequence buyer profiles and 30% requirements have changed 20% significantly from the ‘peak’ of 10% the market in 2007. We are seeing a trend with buyers 0% looking for better and larger Affordability Close to Close to Close to Close to Close to Close space with more emphasis on work/ shops transport friends and amenities to good quality, rather than being driven university links family (cafes, gym etc) schools purely by capital values. Source: Knight Frank Residential Research “This transformation has gathered pace over the last Average prices in Birmingham’s As of December 2014 (latest figures) 18 months, and is directly residential market last peaked in July 2007 Birmingham was the local authority with linked to the improvement a month that saw over 1,800 transactions the sixth highest number of completed totalling nearly £306m worth of property, equity loans under the Help-to-Buy of infrastructure in the city alongside the relocation to equating to an% average sale price of Scheme that began in October 2013,

% ALL

90 the city of businesses such as

£167,607.% Sales volumes hit a low in early which may have partly helped to 87 25-34

82 Deutsche Bank. 2009, in the aftermath of the financial re-energise the local market in the35-44 last crisis, with the average sale price 18 months. “Demand has grown at a time % dropping to its lowest point% a few months

63 when supply is restricted.

% Our forecasts suggest a further 17% later in May. Volumes plateaued61 for the % % 55 % growth% in prices between 2015 and The traditional market of buy- % % % % 51

following two years, but have started to 50 48 50

47 2019 in the West Midlands, and we to-let investors has expanded 46 46 % 46 pick up since mid-2013. Recently the % % %

acknowledge the potential39 for to include owner-occupiers, 38 average sale price passed the previous 37 33 outperformance in some local markets,% including many professionals

2007 peak, with the pace of growth % 26 for example central Birmingham.% working in the city, as well outperforming that in the West Midlands. 20 19 as homeowners looking to downsize. We have also FIGURE 11 FIGURE 12 seen the arrival of students Affordability Close to Close to Close to Close to Close to Close PRS: Average weeklywork/ askingshops rents transportPricefriends change and amenities to good from overseas who have Birmingham, 2014university links Jan 2013family = 100 (cafes, gym etc) schools shown a preference for living in high-quality £350 115 BIRMINGHAM BIRMINGHAM INDEX residential developments. CITY CENTRE ENGLAND & WALES INDEX (B1,B2,B3 & B4) £300 WEST MIDLANDS INDEX, SA “There will be challenges around stepping up delivery of new 100% 110 £250 ALL homes, especially in central 90% 25-34 Birmingham in the coming 80%£200 35-44 years, so we expect price 105 70% growth in this market to be £150 underpinned by that supply and 60% demand imbalance.” 50%£100 100 40% MARK EVANS Average weekly asking rent: 2014 weekly asking rent: Average £50 Head of Regional New Homes 30% Sales, Knight Frank Birmingham

20%£0 95 Studio 1-bed 2-bed 3-bed 2013 2014 10% Source: Knight Frank Residential Research, Zoopla Source: Knight Frank Research 0%

Affordability Close to Close to Close to Close to Close to Close work/ shops transport friends and amenities to good 7 university links family (cafes, gym etc) schools GLOBAL BRIEFING For the latest news, views and analysis on the world of prime property, visit KnightFrankblog.com/global-briefing

RESIDENTIAL RESEARCH Liam Bailey Global Head of Research +44 20 7861 5133 [email protected] Gráinne Gilmore Head of UK Residential Research +44 20 7861 5102 [email protected]

RESIDENTIAL DEVELOPMENT Mark Evans Head of Regional New Homes Sales +44 12 1233 6410 [email protected] David Fenton Head of Regional Land +44 78 3658 7931 [email protected] Andrew Davis Head of Regional Residential Valuations +44 12 1233 6432 [email protected] Lucy Jones Head of Investment Lettings and Management +44 20 7861 1264 [email protected]

Knight Frank Residential Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide Front cover provided by Chatham Billingham (P&M) Ltd including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs. RECENT MARKET-LEADING RESEARCH PUBLICATIONS

RESIDENTIAL RESEARCH RESIDENTIAL RESEARCH PRIME COUNTRY HOUSE INDEX

PRIME COUNTRY HOUSE PRICES UK RESIDENTIAL CLIMB 3.4% IN 2014 Prime country house prices rose for an eighth consecutive quarter between October and December, the longest run of uninterrupted price FORECAST & growth since 2007. Oliver Knight examines the latest figures. Results for Q4 2014 Price growth in the prime country house activity in early December as prime market lost some of its momentum in the property buyers looked to move ahead Prime country house prices increased latter half of 2014, with property values of the rate change. Under the new rules, RISK MONITOR by 0.2% in the final quarter of the year, increasing by just 0.5% during the second buyers of homes valued at more than after a 0.3% rise in Q3 half of the year. This compares to growth of £937,500 face higher stamp duty charges. PRE-ELECTION EDITION nearly 3% over the first six months of 2014. As a result, December 3rd, the day prior to FEBRUARY 2015 Annual growth for 2014 was 3.4%, The annual change in prime property prices the new rules coming into force, was the in line with our forecast for a 3.5% in 2014 was 3.4%, in line with our forecast busiest day of 2014 for the prime country for the year. The countdown to the 2015 increase in prices over the course of market in terms of transactions levels. general election, tighter mortgage lending the year and the prospect of an interest rate rise, all It is possible that the prime sector of the contributed to slower price growth in the market may take some time to absorb the changes as a result of the higher upfront The number of prime country house second half. cost of moving, with harder negotiations sales in 2014 was 3% higher than More restrained price growth in recent between buyers and vendors likely. in 2013 months reflects what has happened in the mainstream market, with the Nationwide Prime country house prices are still trading House Price Index having eased for the at a large ‘relative’ discount to prices in the Prime country house prices are forecast fourth consecutive month in December. capital having experienced several years to increase by 2% in 2015 Any slowdown in the wider market is likely of static or modest growth since the end of to have an impact on buyer sentiment in the financial crisis and prime prices remain the prime markets. 16% below the previous market peak. In spite of more moderate prices rises, As figure 2 shows, price performance is market activity has remained robust. increasingly dependent on property type. The number of prime country house sales While the average cottage increased in completed by Knight Frank in 2014 was value by 6.8% in 2014, manor houses rose 3% higher than the previous year and 24% by just 1.4%. higher than in 2012, indicating that demand We are forecasting average price remains strong. growth of 2% across the prime country Reforms to stamp duty, announced by market in 2015, but do not rule out some Chancellor George Osborne during the areas of outperformance, especially in © Knight Frank LLP 2015 Autumn Statement, sparked a flurry of key commuter towns.

FIGURE 1 FIGURE 2 Quarterly and annual prime Prime country: Annual price change country price growth by property type

6%

OLIVER KNIGHT 4% KEY HOUSING Residential Research This report is published for general information POLITICIANS SHARE 2% THEIR PLEDGES WITH “ The 0.2% price increase took KNIGHT FRANK the annual change in prime 0% property prices in 2014 to 3.4%, in line with our forecast -2% for the year.” -4% QUARTERLY only and not to be relied upon in any way. Follow Oliver at @oliverknightkf ANNUAL 1.4% 6.8% 3.4% For the latest news, views and analysis -6% MANOR Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 COTTAGE FARMHOUSE HOUSE on the world of prime property, visit 2012 2013 2014 HOUSING POLICY UK AND REGIONAL COMPREHENSIVE DATA Global Briefing or @kfglobalbrief Source: Knight Frank Residential Research Source: Knight Frank Residential Research ROUND-UP PRICE FORECASTS AND COMMENTARY Although high standards have been used in The Wealth Report The Private Rented UK Housing Market Prime Country House the preparation of the information, analysis, 2015 Sector 2014 Forecast Q1 2015 Index Q4 2014 views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or

RESIDENTIAL RESEARCH RESIDENTIAL RESEARCH RESIDENTIAL RESEARCH RESIDENTIAL DEVELOPMENT LAND INDEX damage resultant from any use of, reliance on

Knight Frank/Markit House Price Sentiment Index (HPSI) – January 2015

Household sentiment on current and future house prices moderates GREENFIELD LAND PRICES RISE Key headlines for January 2015 had risen over the last month, while 3.1% reported a 2.3% IN 2014 or reference to the contents of this document.  Households in all regions covered by our fall. This gave the HPSI a reading of 58.2 (see figure The growth in land values moderated across England and Wales in the BUILDING sentiment index perceive that prices rose in 1), the twenty-second consecutive month that the final quarter of 2014, reflecting the movement in the wider housing market. January reading has been above 50. However residential development land values in prime central London

UK TENANT Any figure over 50 indicates that prices are continued their strong growth, ending the year up 24%. Gráinne Gilmore  Expectations for future price growth fell back examines the latest market trends. MOMENTUM across the UK in January, and are well below rising, and the higher the figure, the steeper the increase. Any figure below 50 indicates that As a general report, this material does not HOUSEBUILDING REPORT 2014 last May’s record-high Greenfield residential development land turn, has started to weigh on pricing as prices are falling. Key facts Q4 2014 values remained broadly static in the final while there is still sturdy competition for SURVEY 2014 good sites, it is less fierce.  Londoners expectations for house price Average greenfield residential quarter of 2014, rising by just 0.1%. PRIVATE RENTED SECTOR RESEARCH The HPSI was on a general downward trend for This took the annual rate of growth to growth over the next 12 months rose in development land prices up 2.3% in Another factor weighing on greenfield land most of the second half of 2014 (figure 1). January’s 2014, after a 5.3% rise in 2013 2.3%, well under the 7.2% rate of growth January prices is the increasing cost of labour and reading of 58.2, the lowest in 14 months, was a seen in house prices. However it is likely materials. The industry is still gearing up land price growth will remain subdued continuation of this trend and well below the Prices rose by 0.1% in Q4, the most after the recession, and recruitment of  Some 5.9% of UK households plan to buy a over the coming year as rising costs new tradesmen is proving problematic in necessarily represent the view of Knight Frank average reading for last year of 61.0. modest growth since Q4 2012 press on margins. property in the next 12 months many areas. It is no coincidence that the In spite of the month-on-month fall, households in Activity in the land market has certainly cost of building in the UK has risen up the international rankings. It is now the 8th Change in current house prices Land values in prime central London picked up over the last 12-18 months all 11 regions covered by the index reported that most expensive country in which to build, climbed by 6.4% in Q4 2014, taking – this is reflected in 17% rise in private Households perceive that the value of their home prices rose in January, led by Londoners (65.3) and from 43 countries surveyed, according the annual rise to 24% units under construction across the UK in rose in January, according to the House Price households in the South East (63.0). Meanwhile, to Arcadis, the design consultancy firm – December 2014 compared to December Sentiment Index (HPSI) from Knight Frank and households in the North West (53.0) and Wales although the relative strength of sterling to 2013. There has been an increase in activity LLP in relation to particular properties or Markit Economics. Land prices in prime central London the Euro this year has also played a part in (53.9) perceived the slowest rates of price growth in most regions, as shown in figure 2. The up 48% since September 2011 this calculation. over the course of the month. demand for new housing is also robust Some 19.5% of the 1,500 households surveyed across most parts of the country, with the across the UK said that the value of their home take-up of the Government’s Help to Buy FIGURE 2 Equity Loan scheme rising to 38,052 in the Change in number of residential 20 months to November 2014, with some units on site (under construction) 83% of these being first-time buyers. December 2014 v December 2013 projects. Reproduction of this report in whole Fig 1: Change in current and future value of property (HPSI) The supply of land has also risen, with the activities of land promoters helping boost the pipeline of oven-ready sites. This, in

FIGURE 1 Development land values or in part is not allowed without prior written Quarterly changes, Sep 2012 - Dec 2014

8% PCL ENGLAND AND WALES GRÁINNE GILMORE 7% Head of UK Residential Research 6%

5% “ Price growth for residential approval of Knight Frank LLP to the form development sites is likely 4% to be more subdued over 3% EXCLUSIVE 2014 UK the coming year as rising 2% RESULTS construction costs press HOUSEBUILDER SURVEY 1% on margins.” 0% Follow Gráinne at @ggilmorekf -1% and content within which it appears. Knight For the latest news, views and analysis Jun-13 Jun-14 Mar-13 Mar-14 on the world of prime property, visit Sep-12 Dec-12 Sep-13 Dec-13 Sep-14 Dec-14 OUTLOOK HELP TO BUY – DEVELOPMENT WHERE ARE THE IDEAL WHAT TENANTS WANT AFFORDABILITY VS LOCATION Global Briefing or @kfglobalbrief Source: Knight Frank Residential Research Source: Knight Frank Residential Research, Glenigan FOR HOUSING DETAILED ANALYSIS ECONOMICS RENTAL PROPERTIES? NB: A score of 50 equates to no change, above or below representing growth or decline respectively. Frank LLP is a limited liability partnership Housebuilding UK Tenant Survey House Price Sentiment Residential Development registered in England with registered number Report 2014 2014 Index (HPSI) - Jan 2015 Land Index - Q4 2014 OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may Knight Frank Research Reports are available at KnightFrank.com/Research look at a list of members’ names.