analysts and property developers, fearing the changes will destablise the market. Their worry is the conversion will create an oversupply of residential property and shortage of commercial and office space.
When considering these 40,000 units will be an addition to several hundred large new developments, which alone will add several thousand new units annually, you can understand their concerns.
Where is the development taking place?
The main areas undergoing development include the former Fleet Street newspaper district in Holborn, Victoria, Vauxhall, Euston, Waterloo and Hammersmith and parts of Westminster.
Is this a new phenomenon?
Office space converted for residential purposes has been happening on a large scale since the 1990’s. As people’s lifestyles have changed, so have their living requirements.
With an increasing number of people working from home, in local ‘work hubs’, suburban business parks and Canary Wharf - the need for office space has waned.
This is clearly reflected by the cost difference. On average, central London office space sells at a third less per square foot than residential space, presenting developers with a no-brainer opportunity.
For the government, this has been a sensitive topic with strong resistance to the sheer scale of planning permissions granted. But with an annual (national) shortfall of 200,000 new homes and the chance to raise revenue through stamp-duty, politicians will find the temptation to relax planning laws hard to resist.
Will it affect the London residential market?
It would be naive to think the addition of 40,000 new units will destablise the market in a city where the population is set to grow by 14% over the next ten years.
Crucially, this will depend on the standard of the apartments, and whom they are being built for.
Since the mid 2000’s, developers have targeted their apartments at overseas buyers with high-end luxury developments. Currently a booming market, but not without its limitations.
If developers continue to pump out the same high-end stock in the same area, there is a risk some parts of central London could see an oversupply at the top end of the market.
Although, it would be hard to see what happened in cities like Dublin and Birmingham, where new developments lost up to fifty to sixty percent of their value between 2008 and 2010, happening in London. Even in the most severe of recessions.
London’s economy is too diverse, fast moving and international to see a serious shift in the market. Another major factor is the lack of space: there's simply not enough of it in central London.
The market could be affected if the economy weakens, international buyers stop buying or the pound suddenly gains strength.
All of this highlights the importance of buying the right apartment in a good development.
For example, after the most recent financial crash, by mid-2009, even the top end of the London property market saw falls of between fifteen and twenty percent. Nevertheless, some properties fell in value far more quickly and deeply than other properties in the same street or even building. The apartments that did not fall in value as much, also regained their losses far more quickly.
Simply put, if you buy a good property in a good location at a good price - it will always hold its value .
Considerations when buying a new apartment
- Always research the developer and look at other developments they have built.
- Compare prices with period properties in same area
- Assess the local rental market - does it appeal to domestic and international markets?
- Be cautious of buildings where the developer owns a significant proportion of the apartments
- Be cautious of ‘guaranteed rent’ schemes if buy-to-let