London Hotspots 2015

9th April 2015Generic

In 2011, Knight Frank published its inaugural Development Hotspots report. Our analysis highlighted areas where market fundamentals, from regeneration to transport links, suggested new-build property prices had the propensity to outperform the market.

d857c2e6721e4e8db5079e9edb1e341fOf the 13 areas we highlighted, most have performed in line with, or even beyond, our forecasts for achievable new-build prices, as examined in detail later in the report.

Following a comprehensive review, we have returned to our hotspots forecast to reflect our expectations of how different locations are projected to perform relative to the overall market in

The years to come. We expect some of the original locations will now perform in line with the market. We have also added some new locations where we expect to see outperformance.

It is worth noting that the prices we are examining are quite distinct from our wider market forecasts, which include all types of housing. Instead we are looking at very localised areas, comparing current day values for a typical new-build apartment or house to the prices that may be reached by the end of 2018.

After some years of strong performance, price growth is showing signs of easing. This fits with the cyclical nature of the market, as well as specific factors currently at play. However the disequilibrium between supply and demand shows little sign of being addressed, and this, coupled with London’s standing as a leading global city will continue to underpin the market.

It is noticeable that we have widened our scope for development hotspots beyond prime central London, which was the focus of the 2011 report. This not only reflects the “ripple-out” effect of prices from central London, which we expect to continue in the short-term, but also highlights some of the large-scale placemaking which is already underway or which is planned. Some of our hotspots, identified by our analysis alongside the views of our residential development consultancy teams, are not traditional ‘prime’ areas and this will be reflected in capital values, but they are included as the factors mentioned suggest they will outperform the wider market.

By the end of 2018, Crossrail will be open, dramatically cutting travel times across the capital, and making some of our new hotspots even more attractive. We have examined the effect of Crossrail on property movements in detail in our recent Crossrail Report.

The outlook for developers is not the same as it was in 2011. Since then, development land values in prime central London have risen by 48%, and material and labour costs have also spiralled. Yet at the same time, the Mayor of London is making more firm commitments to step up housing supply in the Capital, potentially cutting red tape and freeing up more government and brownfield land.

We are not underestimating the risks to the property market posed by the upcoming election and wider economic and geopolitical landscape. We publish our latest thinking on these in our quarterly forecast and risk monitor, and recognise that any dramatic changes in the current market conditions could impact pricing. However our analysis shows that at the current time, the areas identified in this report are poised to deliver growth that outperforms the wider market.

Methodology

In our analysis we have had regard for demographic and economic forecasts – but the critical elements in our assessment have been the factors which are likely to lead to the dynamics of a particular market area changing over time. So we have looked closely at new and proposed transport infrastructure, the spread of gentrification, current and potential pricing, and critically we have concentrated on areas where there is a real opportunity, either through refurbishment or redevelopment, for residential developers to enter the market and undertake significant schemes over the next five years.

Working with our London Residential Development team we have determined a final short-list of ‘hotspots’ across London where we believe there is (a) scope for development activity, (b) where the underlying market is undergoing improvements due to infrastructure investment or sociodemographic shifts and (c) where there is real potential for price growth over the next few years.

Making new connections

Changes in transport infrastructure stimulate and open up parts of a city, attract investment, create additional demand for housing and can bring new energy to markets in and around transport hubs.

Transport links are a key factor in the property market. We commonly witness price outperformance and see new residential hotspots emerge as access to an area improves or travel times around the city are reduced.

Knight Frank’s recent survey of those renting property in London – the largest of its kind to date – showed that nearly 80% of Londoners said proximity to transport links was a key factor when deciding where to live.

But existing transport infrastructure in London is already straining to keep up with rising passenger numbers. The underground ran more services and carried more customers than ever before in 2013-14, with a record 1.26 billion passenger journeys made. This figure represents 200 million more journeys than in 2009-10. With the population of London forecast to pass 10 million by the 2030s, up from around 8.5 million now, demand for public transport will rise exponentially.

As a result, the arrival of Crossrail, a high-speed line which will increase London’s rail capacity by 10% is highly anticipated. Crossrail will interconnect with 41 other rail interchanges, including London Underground and Overground services, National Rail, Heathrow Express and the DLR, giving people faster, easier journeys across the city.

Our analysis shows that since the project was granted Royal Assent in July 2008, property prices in the areas surrounding the stations have outperformed the wider market.

We expect that other large transport infrastructure projects, if approved, will have the potential to result in similar price outperformance. The map below identifies the proposed new stations and terminals.

Approval has already been granted to extend the Northern Line to Battersea, with new stations being built at Nine Elms and Battersea.

Proposals have been submitted for a new high speed rail link from London to the midlands, known as the High Speed 2 (HS2) project. Under the proposals, terminals will be created in Old Oak Common and Euston, two of our new Hotspots.

The preferred route for ‘Crossrail 2’ – the high speed train which will, if it is approved, run from South West London to the North East of the city, has also been announced. If approved, it is estimated that Crossrail 2 would be completed by 2030. There is likely to be burgeoning interest in development opportunities close to the stations along Crossrail 2, just as there has been along the first Crossrail route.

Hotspots 2015

1. Acton
  • Current value: £650 psf
  • 2018 forecast: £950 psf

Acton is set to be one of the key beneficiary areas of Crossrail. As well as a dramatic reduction in travel times which will open this area up to those working in the City and further east, a new station and improvements to the public realm will enhance the area.

There are over 1,000 private units with planning permission or already under construction in Acton, but the potential supply of homes which have yet to be granted planning is much larger – suggesting a critical mass of delivery which could uplift the whole area.

2. Old Oak Common
  • Current value: £600 – £650 psf
  • 2018 forecast: £950 – £1,000 psf

Plans to create a “superhub” for both Crossrail and HS2 have the potential to transform this 2,300 acre industrial area in west London into one of the Capital’s biggest regeneration projects since the Olympics. The regeneration includes plans to build two new overground rail stations which, taken as a whole, will be roughly the size of Waterloo and expected to handle 250,000 passengers daily. Development plans are being drawn up for retail property and hotels, as well as up to 24,000 new homes.

ISSUES: Depends on approval of HS2 & Crossrail ‘spur’

3. Earls Court*
  • Current value: £1,500 – £1,600 psf
  • 2018 forecast: £2,000+ psf

Planning permission for the Earls Court project was granted in 2013. Under the proposals, the large-scale regeneration of the area will create 7,500 homes spread across four villages and green spaces. Improvements to the public realm, including a new high street, are likely to further increase the desirability of the area.

Buyers will also benefit from being within walking distance of three existing underground stations and one overground station. New-build prices have risen by 20% since 2011. We now expect that prices will reach £2,000+ psf in 2018. The long-term nature of the regeneration taking place in this area – some developments will not be completed until 2032 – means that growth is likely to continue in the medium-term.

4. Bayswater*
  • Current value: £1,750 – £2,500 psf
  • 2018 forecast: £2,750 psf

This area on the northern side of Hyde Park has lagged behind neighbouring areas of Notting Hill, Maida Vale and the Hyde Park Estate in terms of capital values over the past decade. However buyer demand in and around Bayswater is already rising.

Plans to redevelop a large section of Queensway and upgrade the retail and amenities on offer will only enhance the appeal of this area which will also be well served by Crossrail when it opens in 2018.

5. Nine Elms*
  • Current value: £1,100 – £1,400 psf
  • 2018 forecast: £1,800 psf

Running from Chelsea Bridge to Lambeth Bridge via East Battersea, Vauxhall and Albert Embankment, the scale of regeneration taking place Nine Elms is vast. We originally identified the area as a Hotspot back in 2011. While price growth has been robust between then and now, we believe there is potential for further outperformance as new schemes come to market and improvements to the public realm are delivered. Our analysis of development pipelines shows that over the next ten years over 15,000 homes will be built, alongside new schools and parks. A £1 billion transport improvement package includes two new Northern Line stations, at Nine Elms and Battersea, creating direct links to the West End, City and North London.

ISSUES: Pricing could be determined by the phasing of delivery of completed units in this large-scale regeneration area

6. Victoria*
  • Current value: £1,750 psf
  • 2018 forecast: £2,500 – £3,250 psf

The relative ‘discount’ on offer for new-build housing in this area compared to neighbouring Belgravia will become increasingly attractive. Victoria has already seen regeneration and improvement over the last decade, with new retail and office space opening in Cardinal Place. There are plans for further enhancements to the realm and amenity offer alongside providing new homes, shops, offices and improved transport facilities. The Victoria Station redevelopment will give the area a well-needed facelift, and might result in more interest from buyers keen to take advantage of its proximity both to the West End and West London.

7. Mayfair
  • Current value: £5,500 psf
  • 2018 forecast: £7,000 psf

Mayfair has consolidated its reputation as a destination for luxury over the last decade, boasting the very best London has to offer in terms of retail, hotels and amenities.

Significant changes in the public realm, especially around Mount Street, have enhanced the appeal of the area among buyers. Another upgrade is on the way with the construction of new ticket halls for Crossrail, which will open in 2018. The residential developments under construction or in the planning pipeline in Mayfair are now starting to compete in terms of luxury, underlining the “super-prime” status of this postcode.

These ambitious schemes provide the opportunity for further uplifts in prices.

ISSUES: The future “superprime” market may be influenced by Government policy, especially in respect of property taxation.

8. Euston
  • Current value: £1,000 psf
  • 2018 forecast: £1,500 psf

As part of the Euston Area Plan, a collaborative effort between Camden Council, the Greater London Authority and Transport for London, the area will be rejuvenated with new homes, businesses, schools and local amenities, centred on the redevelopment of the existing rail station. Euston is also likely to benefit from an overspill from King’s Cross as buyer demand filters out. We expect the development trends at King’s Cross will be replicated in Euston. Prices average around £1,000 per square foot and we forecast this will rise to £1,500 per square foot by 2018.

ISSUES: Pricing could be determined by timing of delivery of schemes.

9. King’s Cross*
  • Current value: £1,400 – £1,500 psf
  • 2018 forecast: £2,000 psf

Prices in King’s Cross have already achieved the upper-end of our earlier forecast in 2011, but the high-quality nature of the developments which are planned means we see the potential for further growth. There are 265 units already under construction and a further 1,700 units with planning approved which will be delivered in coming years. Technology giant Google’s plans to open a new head office in King’s Cross in 2016 will further underpin the status of this area. As one of the main transport hubs for London, with direct links to many of the UK’s key cities as well as Paris, and six underground lines, it boasts enviable connectivity within the Capital.

10. City Fringe*

In our 2011 Hotspots Report we identified the City & City Fringe as a hotspot. In this report we examine some areas on a more localised basis, identifying pricing trends for each locality:

Farringdon
  • Current value: £1,100 – £1,300 psf
  • 2018 forecast: £1,600 psf

An estimated three million passengers are expected to use Farringdon’s Crossrail station every month when it opens in 2018 making it one of the biggest transport interchanges in the capital. The area has already seen a noticeable increase in buyer activity in recent years due to its proximity to the City and also as a result of widespread regeneration and redevelopment. A range of public realm improvements are planned in the vicinity of the station and our analysis shows that there are over 1,200 residential units under construction or with full planning permission in the area. Farringdon was included in our original 2011 hotspots report – and new-build prices in this area have already reached our 2016 forecast, with more growth anticipated.

Shoreditch
  • Current value: £1,200 – £1,300 psf
  • 2018 forecast: £1,500 – £1,700 psf

We have isolated Shoreditch from the Eastern Fringe as we believe that this localised area has the opportunity for further growth. Shoreditch has undergone a marked transformation over the last two decades and the area now attracts young professionals from all over the world. This is likely to continue with growing commercial interest in the area expected to result in a significant expansion of the professional workforce. The forecast for household growth in Hackney between 2011 and 2021 is 13% – or an extra 13,000 households.

Whitechapel
  • Current value: £900 – £1,000 psf
  • 2018 forecast: £1,250 – £1,500 psf

The area is set to become a major transport hub, connecting Crossrail to the London Overground orbital route around London. Crossrail will also mean that Whitechapel has a direct link to Heathrow. In terms of development, the Whitechapel Vision Masterplan will guide new development in the area over the next 15 years. Focusing on six key areas the plan will deliver over 3,500 new homes by 2025, generate 5,000 jobs, and create seven new public squares and open spaces. Our analysis shows there are 550 units currently under construction or with planning permission which will be delivered in the coming years.

11. Dalston & Hackney
  • Current value: £700 psf
  • 2018 forecast: £1,000 psf

Situated two and a half miles north of the City of London, Dalston benefitted from the arrival of the East London Overground line in 2010. The overground rail link connects the area with Canary Wharf, via Canada Water, and the West End via Highbury & Islington. The line’s arrival came with a new Dalston Junction station and development in the area. Currently there are just over 1,000 homes being built and more in the planning pipeline.

We expect this ongoing regeneration will have a positive impact on pricing in the coming years. The popularity of these areas with families has underpinned prices, and we see this demand continuing.

ISSUES: Would benefit from more transport infrastructure ahead of Crossrail 2

12. Olympic Park & Stratford
  • Current value: £700 – £800 psf
  • 2018 forecast: £1,000 – £1,200 psf

Perhaps the main legacy of the 2012 London Olympics was the regeneration of the Olympic Park. Thousands of new homes are currently under construction, recently completed or in the planning pipeline, transforming a previously barren part of the city into five new neighbourhoods. The area is already well served by transport with London Underground connections, mainline rail services and the DLR at Stratford.

The arrival of Crossrail in 2018 will add to these, further expanding the pool of potential buyers.

13. Tottenham Hale
  • Current value: £450 psf
  • 2018 forecast: £750 psf

With over 30 hectares of development and investment opportunities, Tottenham Hale has notable potential. The area forms part of the Upper Lea Valley regeneration plans – a joint initiative between the GLA, TfL and four London boroughs to deliver thousands of new homes and jobs. Already transport infrastructure is being improved with a £110 million investment in a new tube, rail and bus station, as well as road network improvements and public realm works due to complete in 2017. Tottenham Hale is also on the preferred route for Crossrail 2, which could serve to increase buyer demand close to the station if final permission is granted.

ISSUES: Crossrail 2 not yet confirmed

14. Canary Wharf Estate
  • Current value: £1,200 psf
  • 2018 forecast: £1,750 psf

Canary Wharf is already an established business and residential district. Despite the area’s relative maturity in terms of regeneration, there is scope for further price growth in the new-build sector, led by improvements to transport infrastructure as well as new residential development.

Transport will be boosted by the arrival of Crossrail which will be the first direct public transport link between the West End, the City and Canary Wharf – London’s three key areas of business and wealth creation. New development will help satisfy demand as it spreads eastward from prime central London.

15. Greenwich
  • Current value: £600 psf
  • 2018 forecast: £950 psf

In time, Greenwich Peninsula is set to become a new district for London with thousands of homes, offices, schools, shops and community facilities. Some of this re-generation is already underway, with over 13,000 new homes currently under construction or with planning approved.

Transport options in the area include the Jubilee Line with links to Canary Wharf and the West End, the Emirates Airline cable car link, the DLR and Thames Clipper services on the river.

ISSUES: Amenities, including shops and community facilities, need to be delivered at start of development

16. Royal Docks
  • Current value: £600 – £700 psf
  • 2018 forecast: £900 – £1,000 psf

Plans are in place, backed by the Mayor of London and the Mayor of Newham, to turn the Royal Docks into the Capital’s next “business district”. The regeneration aims to create a centre for global trade, with thousands of jobs and new homes.

Already over 6,000 new homes are being built or have had planning permission granted. Population projections by the GLA suggest that in the Royal Docks area there will be a 103% increase in population by 2028. Work is progressing on Crossrail which, when complete, will stop at Custom House station in the Royal Docks making the area more accessible and reducing journey times to and from Heathrow, Canary Wharf and the City of London.

ISSUES: Pricing could be determined by timing of delivery of schemes and amenities

17. Woolwich
  • Current value: £650 psf
  • 2018 forecast: £950 psf

When the Woolwich Crossrail station opens in 2018, about a dozen trains an hour will link the area to Canary Wharf and the West End, as well as Heathrow. This promise of this increased connectivity is already boosting demand from buyers. Woolwich Arsenal is set to be key to the more established business and residential hub as it emerges in East London – benefitting from the availability of land in order to deliver much needed homes for London. There are currently nearly 5,000 units under construction or with full planning permission in Woolwich.


* 2011 hotspots

Source: Knight Frank Residential Research