Savills : Activity returns to the land market, with smaller sites leading the way

The report goes on to say that the increase in activity has in most regions yet to translate to values this quarter. UK greenfield and urban values fell marginally by -0.1% and -0.3% in Q3 2020.

More new sites are coming to market increasing the supply of land after the inevitable pause in the market due to the Covid-19 lockdown. According to the report, a net balance of 65% of Savills development teams reported that this was the case in September, increasing from 29% in June and -75% in April.

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The need to make up for the lack of land buying since March has driven competition for sites which has sustained values in many markets. In certain regions, such as parts of the South West, values have been pushed up to exceed even pre-Covid-19 levels.

Housebuilders resume land buying albeit with caution

The major housebuilders have re-entered the land market and in general are the most active players for sites of c.100-150 units outside of London, with activity inside the M25 increasing at a slower pace. But approaches are varied: there are those who are actively pursuing attractive land opportunities, adding to their pipelines, those who are focusing on a fast build and sell model with smaller sites and those who are more cautious, opting for sites with strong margins.

Smaller sites under 150 units continue to attract the most interest. Lydia McLaren, Savills research analyst, says: 'Sites under 150 units appeal to a range of players including regional housebuilders, housing associations and also major housebuilders needing to fill gaps in pipelines and wanting to build out sites quickly. Parties are also showing a preference for house-led sites as those looking to be risk averse are being more cautious of apartment schemes.'

London land values remain robust

Land values in London remain relatively stable, the report found, with no significant change in values over the lockdown period.

In the six months to September 2020, land values in central London fell marginally by 1.6% and in outer London remained at the same level as March (0.0% growth). McLaren says, 'The difference in performance in central and outer London reflects changes in house prices. Whereas there has been slight growth in average house prices across the capital (4.5%) according to Nationwide, house prices in prime London have fallen -1.0% over the last six months.'

Unconditional sites or those for sale subject to planning, with opportunities for value add and ready to start building in two years are currently in the highest demand in London. Smaller oven ready sites of up to 40 units attract smaller developers and contractors who don't have large pipelines and buy land on a site by site basis. Whereas larger sites are receiving interest from build to rent operators and developers if the forward funding model works. Housebuilders are being selective with sites in London, more focused on outer London zones and only more proactively bidding for sites where they have a particular gap in their pipeline to fill. There are also more sites coming forward in prime zone 1 locations than compared to previous periods.

Focus on investment in existing stock for housing associations

According to the Savills Housing Sector Survey 2020, Covid-19 has tempered sector appetite for risk. The survey also revealed a sector focus on investing in existing stock to meet building safety standards in the short term and net zero carbon standards in the longer term.

However, there is still some appetite for development amongst housing associations. According to the Inside Housing Survey in 2020, the top 50 housing associations based on their development pipelines are still planning to build 39,000 homes in 2020/21, a 4% reduction on completions in 2019/20. The recently clarified £12 billion Affordable Homes Programme 2021/26 gives providers greater funding certainty and the ability to be more competitive in the land market.