London Development Barometer


Summary of results - London Development Barometer - Spring 2019

23 May 2019

Summary

M3 Consulting’s bi-annual London Development Barometer (LDB) was launched in autumn 2017 to compile a snapshot of market sentiment from property specialists and decision makers involved in London development activities.

Since the last London Development Barometer took place in December 2018, the political landscape has undergone a seismic shift as the UK’s attempt to negotiate its departure from the European Union continues to play out. It has resulted in three rejections of the Prime Minister’s withdrawal agreement, two extensions to the Brexit deadline and a promise from the incumbent Theresa May to stand down if her deal or some variation of it- is approved in Parliament. The new Brexit deadline is now six months away.

Industry policy and funding announcements have seen a £3bn affordable housing commitment at the largely uneventful Spring Statement in March 2019, the Labour Party vow to end Permitted Development Rights in the event of it coming to occupy Downing Street, and Sadiq Khan propose an amendment to his London plan which stipulates that all new build to rent (BTR) development must provide social rather than discounted housing. There were also ongoing concerns around the proposed timeline for the completion of Crossrail.

The Spring 2019 LDB aims to uncover whether and how these and other prevailing factors have influenced the industry’s views and outlook.

M3C005 M3 Consulting Infographic SpringSummer May19 crop

 

Results overview

Overall, the industry is not convinced about the extension of article 50 to 31 October, with only a third believing the it will produce a better deal for Brexit and 6 in 10 of the opinion that it will have a negative impact on development activity in the capital. But a lifted mood when it comes to levels of foreign investment and predictions for development activity in the next five years suggest that the long-term view is more positive.

The industry has again expressed concern with the lack of progress on planning improvements and funding, both of which it believes should be the government’s top priorities and that has been the case since 2017. It doesn’t seem overly concerned with the government’s handling of the prospective Brexit transition period, placing this as its third priority after planning improvements and funding for infrastructure .With Brexit taking the lion’s share of the political debate in the last six months - despite it being widely expected that the U.K. would have left by now –the dissatisfaction with central and local government and their role in enabling development in London remains high: 83% believe they can be doing more to enable development in the capital. Of these, however,17% believe they are discouraging development activity, the highest level since autumn 2017.

 

Summary of the respondents

  • 229 responses, with a 100% completion rate
  • 65% of the respondents were senior figures at their organisations
  • Representation came from organisations involved in a range of sectors
  • SMEs (up to 250 staff) account for 54% of the respondents, with 46% from large companies (251+ staff)%
  • Average of 21 years’ industry experience

 

Key findings

1. The industry is concerned about the impact of the extension of article 50, with 59% predicting it will have a negative impact on development activity. Only 15% believe its impact will be positive and a quarter of respondents (26%) believe its impact won’t be felt at all.


2. Just one third (36%) of the industry believes the extension of article 50 will produce a better deal for Brexit. 48% believe it will not and 16% do not know.


3. The industry is more optimistic about development activity levels compared to six months ago, but remains concerned.

  • 43% believe there will be less development over the next five years, compared to 46% six months ago.
  • 32% believe there will be more development over the next five years, up marginally from 29% six months ago.
  • These figures were at 42% and 33% one year ago.


4. The industry’s dim view of government has remained consistent throughout the years, with 83% still believing they are not doing enough to enable development in the capital.

  • 17% of respondents believe they are actively discouraging it, the highest since the launch of this survey.
  • Similarly, only 11% believe they are doing enough compared to 13% six months ago and 12% one year ago.


5. The industry is more balanced than it was six months ago when it comes to thoughts on overseas investment, although the mood has improved. 64% believe inward investment levels will either increase or stay the same, compared to 51% six months ago.

  • 32% believe Brexit will lead to more investment, 30% believe there will be less and 31% believe there will be no change.
  • 25% thought there would be more foreign investment when asked six months ago.
  • Three quarters (74 %) believe Asia will be the largest investor, down from 79% six months ago. The Middle East is again expected to be the second largest at 11%.


6. Construction skills and capacity is still the industry’s biggest concern, but fears have eased slightly. 79% believe it will have a negative impact on development activity, which was at 85% six months ago. 68% believe the same of the cost of construction, whilst land supply and stamp duty are joint third, garnering 56% of the vote.

  • Confidence in Crossrail is declining. 71% believe it will have a positive impact on development activity, although that’s down from 77% six months ago and 81% in 2017.
  • The industry is losing confidence in the Mayor too. 35% believe his policies will have a positive impact on development activity compared to 45% six months ago and 52% in 2017.
  • Fears over the global economy are also growing, up from 42% one year ago to 52% today.


7. Improving the town planning process continues to be the industry’s top priority. 56% ranked it in their top two and 35% ranked it as the top priority, similar to six months ago. Funding for local authorities, infrastructure, transport and housing delivery was in the top two for 32% of respondents, although that is down from 43%.

  • The industry considers those two priorities more important than mitigating the post Brexit transition period (e.g policies on trade, skills, investment), which is in third place as 31% placed it in their top two.
  • Promoting build to rent policies and retaining policies that support home ownership were again in last place, with 9% and 8% ranking in the top two respectively.


8. The industry is more confident on the development finance front although concerns remain, with 65% predicting an increase in the cost of finance over the next five years. That’s down from 75% six months ago.

  • Most respondents believe there will be an increase in the availability of finance (37%), an improvement from the 30% six months ago.
  • Despite concerns around the cost of finance, only half of the industry believes the cost increases will have a negative impact on activity.
  • Interestingly, just 29% of respondents believe the changes to the availability of finance will have a positive impact.


9. 84% predict an increase in market demand for senior living development over the next five years. 74% predict an increase in demand for affordable/council housing, down from 86% six months ago.

  • Confidence in the demand for Build to Rent falls from 84% to 75%, similar to where it was in Spring 2018.
  • Confidence in the demand for retail is set to plummet, with 79% predicting a decrease, representing a slight increase of 1%from six months ago.


10. The industry is undecided on the direction of residential sales, with 41% predicting an increase in demand and 38% predicting a decrease. Six months ago, 44% predicted an increase and 30% predicted a decrease.