Property Development and Property Investment Statistics: A UK Guide

Property Development in the UK

Current State of Property Development

The property development landscape in the UK is heavily influenced by various market trends and the evolving needs of the population. Some notable market trends and demands include:

Commercial Property Market:

• In 2022, the UK was the second-largest commercial real estate market in Europe, valued at over $1.7 trillion (£1.3 trillion), with various property types such as industrial, office, retail, and more.

• The UK's public real estate market saw a significant decline in 2022, with listed companies losing around $47 billion (£41 billion) in market capitalization due to economic slowdown, rising interest rates, inflation, and geopolitical tensions.

Despite challenges, the commercial real estate market is expected to experience moderate growth in capital values until 2027.

Residential Property Market:

The UK has been grappling with a shortage of affordable housing for years. This has led to increased demand for residential developments, including affordable housing, rental properties, and mixed-use developments.

• Since the COVID-19 outbreak, the UK's residential property market has seen a surge in demand, leading to substantial price increases.

• Limited affordable housing availability has intensified competition among homebuyers.

• In 2022, average house prices across regions ranged from £200,000 to £550,000.

• Homeownership is common in the UK, with a majority relying on mortgages. The UK's homeownership rate is similar to that of the Netherlands, Sweden, and Denmark at 65%.

• Since 2014 - the amount of housing completions in England has fluctuated. In the second quarter of 2020, there were an estimated 17,000 housing completions to a peak of 53,000. The notable decrease followed by this spike is linked to the COVID-19 pandemic in 2020.

• The size of the UK Residential Real Estate Market is projected to increase from $340.68 billion in 2023 to $450.55 billion (£280.26 billion to £370.67 billion) by 2028, demonstrating a Compound Annual Growth Rate (CAGR) of 5.75% throughout the forecast period from 2023 to 2028.

• Between April 2022 and 31st March 2023 – Homes England’s initiatives led to 36,478 new homes starting construction and 32,990 were completed.

• The Shared Ownership and Affordable Homes Programme 2016-21 is set to surpass its 130,000 target of new homes started.

Sustainability: Environmental considerations have become paramount in property development. Developers are increasingly incorporating sustainable features, energy efficiency, and green building practices into their projects to meet regulatory requirements and address environmental concerns.

A significant percentage of homebuyers in the UK showed interest in the environmental sustainability of their potential homes. Approximately 80% of first-time buyers and 78% of repeat buyers considered purchasing a green home in 2022. Property features related to energy efficiency, renewable energy sources, and energy-saving measures were the most popular and likely to command a price premium.

Co-Living and Flexible Spaces: With changing lifestyles and work patterns, there's a growing interest in City Co-living spaces and flexible working environments. Developers, like Beech Holdings, are adapting to these trends by creating co-living accommodations and mixed-use developments that offer both residential and commercial spaces.

Momentum is building in the Co-living sector. Savills research found that there has been a significant surge in Co-living activity as a result of the COVID-19 pandemic:

• Increased desire to live in these spaces for residents due to its opportunity for communication and interaction

• In 2022, there were 2,000 new beds completed and offered to residents, bringing the overall operational Co-living beds in the UK to 3,422. This upward trend is set to continue, with an additional 4,999 beds currently under construction.

Co-living has had a significant impact on property development in recent years, reshaping the way developers approach housing projects and influencing urban landscapes. It has introduced a new dimension to property development, emphasising community, affordability, and innovative design. Beech Holdings proposes Salford Co-living for the creation of two 10-storey blocks consisting of both studio or one-bedroom options available for residents.

Developers are adapting to this evolving market by creating spaces that cater to the changing housing preferences of urban dwellers. Co-living is likely to continue influencing property development, particularly in densely populated cities where housing affordability remains a challenge.

Impact of External Factors on Property Development

Property development is a dynamic industry that can be significantly influenced by external factors beyond the control of developers and investors. Understanding and adapting to these external influences is essential for navigating the challenges and opportunities in the real estate market. In this section, we'll explore three key areas where external factors play a crucial role in shaping property development projects.

The Role of Economic Fluctuations

Economic conditions, both on a global and local scale, can have a profound impact on property development. Here are some key aspects to consider:

Interest Rates

The fluctuation of interest rates can greatly affect property development. When interest rates are low, borrowing costs decrease, making it more affordable for developers to finance their projects. Conversely, rising interest rates can lead to higher borrowing costs, potentially impacting the profitability of projects and the ability to secure financing.

The interest rates provided by lenders hinge on various factors, including the loan amount, your expertise, the site's location, and the loan amount as a proportion of the gross development value (GDV). As of November 2022 development loan rates can vary significantly. The typical rate for a loan above £500,000 would be about 7.5% while, below £500,000, it would be about 9% per annum. According to research on development finance rates, fees, and costs, for smaller or riskier loans, a more realistic interest rate falls within the range of 0.85% to 1.35% per month, which translates to an annual rate of 10.2% to 16.2%.

Market Demand

The state of the economy can influence consumer confidence and purchasing power. During economic downturns, potential buyers or tenants may be more cautious, leading to reduced demand for properties. This can result in longer holding periods for developers and increased carrying costs. According to research on housing statistics, it’s no surprise that the ongoing political instability, high inflation, and worsening economic conditions significantly impacted the UK housing market in 2022.

The housing market began to calm down in 2022, leading to a significant drop in monthly housing transactions. The rise in mortgage costs has reduced both buyer demand and the amount of sales. The affordability of mortgage repayments stood as the primary obstacle to homeownership and concerns about mortgage repayments increased from roughly 40% to 66% within a year. A December 2022 survey found that an estimated 50% of UK adults expressed a lack of trust towards buying a home, leading to reduced demand for properties.

There has been an increase in home buyers opting to buy new build homes which is pinned down to the potential cost savings of buying new build housing as opposed to an older house. New home registration is up by 30% and a total of 44,729 new homes were registered to be built in 2022 compared to 33,603 in 2021. This property sales increase is expected to slow in the upcoming years due to higher mortgage rates and a decrease in consumer confidence.

Influence of Political and Brexit Implications

Political stability and government policies can significantly impact property development. In the context of the United Kingdom, Brexit has introduced a layer of complexity to the industry:

Initially, it was expected that Brexit would create an 18% decline in the property development sector on top of the prediction there would be a 20% fall due to COVID-19. Research found that house prices increased by 32% between July 2016 and May 2022. RW Interest justifies these findings by detailing buyer demand was high and is expected to continue doing so, with the prices set to increase by nearly 19% across the UK by 2026.

The Buy Association talks about the impact of Brexit on different regions. London has always been the most expensive market. In May 2022, East Midlands saw a 42.3% price surge, while London had only 12.7% growth. Prices in London have fallen by 16% due to affordability pressures. Affordability and taxes weigh on London's prices, worsened by political instability. The impact of Brexit isn't the main driver of regional growth, but it did impact London's slowdown.

The Pandemic’s Effect On Property Development

The COVID-19 pandemic has brought unprecedented challenges to the property development landscape:

Remote Work Trends

The pandemic has accelerated various trends in the market: As a large share of the office workforce switched to working from home, businesses have had to redefine their office concepts and adapt them to hybrid work.

The Office for National Statistics reported in 2022 that the number of people working from home in the UK more than doubled from 4.7 million to 9.9 million people between October to December 2019 and January to March 2022 There was a surge in demand for larger homes with dedicated office spaces and outdoor areas.

The desire for properties with gardens, balconies, or terraces increased by 68% in the first half of 2021 compared to the same period in 2019. In February 2022, 84% of workers who worked from home during Covid, decided to do hybrid working in the future. Only 8% planned to return full-time to the office, which saw a decrease from 13% in April 2021. With many companies adopting a flexible, hybrid work model, or allowing employees to work from home permanently, there’s been a decrease in demand for traditional office space.

Housing

Research investigating the ipmact of Coronavirus on housing saw the pandemic has boosted housing and rent prices further. The main driver of this increase was that there was a low cost of borrowing. In June 2022, house prices stood at an estimated 150 index points which has seen an increase of 30 index points since the pandemic. This means that residential real estate grew approximately 30 percent across the period of 2015 since the index value was 100. Home buyers were able to purchase homes with interest rates as low as 3% whereas in 2023, real estate companies like Zoopla say that most banks expect a 10% deposit. Other growing concerns included the difficulty of securing a deposit for a mortgage and the potential for property prices to decline.

As of July 2023, the average house price was £289,824 which is £2,000 higher than last year. However, It is £2,000 lower than the peak year in November 2022. It is expected that house prices will decrease across 2023 and 2024. With the expectation that London will see the largest decrease in the next few years, with a major decline in 2023. In terms of renting, expect to see a rise in cost. It’s no surprise that UK rent reached an all-time high in August. Meanwhile, demand in the UK rental market continues to be high in the North West.

This robust demand in the UK's residential property market has created significant opportunities and challenges for lettings and property management professionals, as they navigate a competitive landscape while ensuring the effective management of rental properties.

In conclusion, property development is subject to a multitude of external influences that range from economic fluctuations to political decisions and the impact of global events like the COVID-19 pandemic. Successful developers and investors must remain vigilant, adaptable, and well-informed to navigate these external factors effectively and make informed decisions in a constantly evolving industry.

The Future of Property Investment in the UK

Predictions Based on Current and Past Trends

Here are some key statistics and predictions for UK house prices and the rental market over the next 5 years (2023-2027).

2023-2024: The housing market is expected to calm down due to the expected base rate rise which has resulted in higher mortgage rates.

• Savills: Anticipates a base rate reaching 4% in early 2023. Expected to remain stable before declining mid-2024.

• Capital Economics: Expect the base rate to reach 5% in 2023, dropping to 4.25% in 2024.

• Predictions indicate a potential decrease in house prices: Savills (10%) and Knight Frank (5%) in 2023.

2025-2026: Savills envisions a 7% upswing in house prices in 2026 if mortgage lenders lower rates and the base rate decreases, implying that a significant UK housing market crash is unlikely.

2027: Office for Budget Responsibility (OBR) anticipates a property price increase of 3.5% in 2027, while Statista predicts an average house price growth of 1.7% from 2023-2027.

UK Rental Market Predictions (2023-2027):

• Notable transformations in the UK rental market, particularly in London and Birmingham, with increased construction activities.

• Expected UK-wide annual rental price increases of 3-4% between 2023-2026, with regional variations.

• Rental growth in city centres is predicted to range from as low as 1% (Edinburgh and Glasgow) to as high as 6% (Manchester and London).

• Rental demand is expected to remain high, with rental enquiries currently 46% above the 5-year average, while the supply of rental properties is 38% below the 5-year average.

• 51% European Investors plan to invest in co-living across the next 3 years.

Buy-to-Let Market in the UK:

Landlords with buy-to-let portfolios face challenges such as rising mortgage rates, inflation, tax changes, and new regulations.

• Stamp Duty for second homes has increased, tax relief has been reduced, and there are new regulations like the Renters Reform Bill. Use a stamp duty calculator to get an indication of what you would have to pay.

• The slowdown in house price growth may reduce the security on loans and increase repossessions.

• Landlords sold more properties than they purchased in 2022.

For landlords with a robust financial cushion and the ability to handle mortgage payments, retaining a property may be the right choice, particularly in high-demand urban centres like London and Birmingham. There are tax implications for property investors that need to be considered when making a decision.

It’s clear that the property development landscape in the UK is influenced by various market trends and evolving demands. The commercial property market remains substantial, despite recent challenges, with expectations of moderate growth until 2027. The residential property market grapples with a shortage of affordable housing, leading to increased demand and rising prices. Sustainability and environmental considerations play a crucial role in shaping developments, as more buyers seek green and energy-efficient homes. Co-living spaces and flexible working environments are gaining prominence, reshaping housing projects and urban landscapes.

External factors, such as economic fluctuations, Brexit implications, and the COVID-19 pandemic, have significant impacts on property development and investment. Economic conditions, including interest rates and market demand, influence the industry's dynamics. Brexit's influence is felt differently across regions, while the pandemic has accelerated trends like remote work and increased housing prices.

Property investment is subject to global events, such as economic crisis, which can lead to fluctuations in property values. Economic downturns can affect housing affordability and rental rates, making real estate an attractive investment during uncertain times. Rental yields vary across regions, with affordable housing markets offering higher returns.

Predictions for the future suggest a slowdown in the housing market due to expected base rate increases, potentially leading to a decrease in house prices. The rental market is expected to see annual price increases with regional variations. The buy-to-let market faces challenges, but landlords with financial stability may find value in retaining properties, especially in high-demand cities like London and Birmingham.