By Louis C. Montegriffo, Managing Director, BMI Group

Or are they??

Don’t panic people, I am not about to take issue with civil rights movements, although to be fair, we could do with our own version of Bob Dylan singing tunes at the border and blowing some sense into the wind.

No ladies and gents, I am of course making reference to the advent of NEW DEVELOPMENTS … everywhere!

Over the past few weeks and months, we have witnessed the launch, pre-launch or announcement of new schemes to hit the market, both residential and commercial. In short we are potentially looking at over 25,000sqm of proposed office development in the shape of World Trade Centre, Victory Place, and NW1 and approximately 200 new residential units with the recent launch of Imperial Ocean Plaza and Midtown.

The last time we saw such activity was between 2003- 2005, where developments such as Ocean Village phase 2, Kings Wharf, Atlantic Suites and The Anchorage took to market and between them placed approx. 450 units on to market.

So, what do we make out of this new era of property development?

The bigger picture?

It’s been a good 6 years since we saw the last dip in the market, not driven by economic recession I might add, but by pure and on occasion unadulterated speculation which left us with the near 250+ properties for sale and more lettings than we cared for. Over the period we have seen the market dip by an average of 20% (with some developments faring better than others) and rise again to beyond 30% of the position back in 2007 – a pretty serious movement over such a short period.

Back in 2011 we had hinted at the fact that the market had in effect come through the turbulent period of over-supply and we entered into a new period of real and sustained growth driven primarily by continued buoyancy in the economy, which by the way, continues at an increased pace year on year. In essence we’ve had 3 very good years which has seen the hardening of prices at all levels of our property market, plus the creation of a new tier in the market – the fourth tier so to speak, one that we call the “upper high value” market – the £1m+ range.

Demand and growth in the market over the past 36 months, has taken its toll on the portfolio of properties available. Today there are no more than 100 units for sale to the immediate home occupier / buy to let investor; which from a numbers point of view is the lowest we have seen for some time. The impact of this is clearly seen by the rate at which prices have increased, over the past 18 months.

So, it’s sensible in our view to assume that a new impetus in the market of new residential schemes is a positive, and considering the numbers involved, unlikely to drive prices down, particularly when considering completion dates of Imperial Ocean Plaza, likely 2017/18 and Midtown, likely during the same period if not earlier. So to speak, the occupier market has another 24 months to see further growth, unlikely to be at the same pace, but certainly increased rates / sqm are on the cards. This is NOT to say that the market is set to take a dip after 24 months, but one needs to take into account what up take there is from owner occupiers, buy to let investors and speculators, on these new schemes, in order to take a sensible longer term view. I’m staying on the positive side of the fence for now, albeit with a cautious eye on what to put your money on.

The target market / the product / the pricing!

One factor to consider amongst all of what is happening is the impact of the speculative market. Although there is no question that the market is in much need of new developments, given that portfolio numbers are at an all-time low since 2000; the release of near 200 units on the market will inevitably attract speculators. Who are these speculators??? Well they come in different shapes and sizes and will have different expectations, but in short they want to make a quick turn on their investment. Question is, where’s your best bet? Well, history will no doubt present its own views on this and you, the reader, will have your own preferences and opinions. But key to all of this will be; who’s your neighbour, i.e who else has invested? why have they invested? and what investment mix (type of buyer) there is? To make the point; if you are invested with a healthy ratio of owner occupiers, buy to let investors and speculators, with the latter comprising of experienced players, one would say that you’d be in good shape. If however you have invested with a high ratio of speculators, driven by quick turns – well, the risks are blatantly higher.

I am fortunate enough to be presented to clients looking to invest, whom will say, “I prefer to invest in properties that only I would be prepared to live in”….. these are sensible people in my view. It’s not just about a
buoyant market and jumping on a gravy train, but rather, what you buy with particular respect to the end product, it’s location, its view, the amenities and the layout and distribution of the property – all of these factors are key when investing in property and should not be taken for granted.