Developers are `downsizing? big luxury apartments as demand dries up
Sun 01 May 2016
Prime London property developers are re-examining the final phases of many schemes that were expected toinclude three and four bedroom apartments and penthouses, says one lettings agent, as demand fails to keeppace with an over-supply of big luxury flats.
As rumours continue to circulate that Battersea Power Station (among others) is considering cutting the size ofsome of the schemes more vast residential units, estate agency Benham & Reeves has noticed a wider trend ofdeveloper downsizing: With the slow down at the top end of the market and an oversupply of luxury properties,many developers are considering lowering the specifications or carving these larger apartments into one- andtwo-bedroom units, says the firm. These will sell more quickly and crucially, those bought for investment will letmore quickly.
Savills and the Candy brothers were among the first to warn of the potential for over-supply at the top of themarket calling it back in 2013 ( here and here ) as luxury new-build pipelines surged. More recently, mostbig resi forecast units have been anticipating a cut-back in high-end activity, with JLL trimming its new-buildprice forecasts in February , and Morgan Stanley assuming a 10-20% fall in new-build, high-end residentialpricing this year.
The luxury homes pipeline is, however, due to peak next year before chilling out a bit. Arcadis took an in-depthlook at developers plans just last month, discovering that squeezed margins are pushing investors out of thetop-end of the development market, and that some developers are now considering turning resi units into morelucrative office or commercial spaces. Read all about Arcadis research on PrimeResi here .
According to Benham & Reeves Residential Lettings own statistics, 49% of all flats let across its 15 Londonoffices have been two-bedroom apartments. One-bedroom units constitute 22% of all transactions, studios 11%and the remaining 18% are apartments and houses with three or more bedrooms. These statistics areunsurprising when compared to the ONS research from 2013 that showed that 38% of rented households areoccupied by just one person. Marsh & Parsons has also weighed-in on this trend, arguing in February thatone-bed flats are leading the way in prime London .
The problem is two-fold, explains Marc von Grundherr, Lettings Director at Benham & Reeves ResidentialLettings, Firstly, the top end of the market was booming so naturally developers started building luxuryproperties. No block of flats was complete without one, two or three multi-million pound penthouses, not tomention other high end developments in prime areas where the starting price was 1m. Now that these propertiesare finally hitting the market, demand has dried up.
Secondly, this isnt Hong Kong or Manhattan. British families tend not to live in large apartments but in houses.Flats are for individuals, couples and downsizers. Even when we get a family asking for a larger property, theyreoften renting while they look for something to buy or while theyre renovating their principle property. Developersand especially planners need to recognise where the demand is. Its for smaller units that let more easily andthese units are also the ones in demand by owner occupiers.