Market Roundup Spring 20177 March 2017
The word ‘Brexit’ has only been in the lexicon for three years, but it feels like a lifetime. Only two years ago stamp duty was an annoyance: now it’s the pain that keeps on hurting – and Dr Hammond doesn’t look as if he’s going to administer any pain relief soon. However, it would be impossible to produce any sort of market roundup without talking about both – but we will try to be brief.
Stamp duty has dragged down turnover by nearly 60% from what appears, with hindsight, to have been a market top in 2014. Prices have followed – but much less precipitously: 25-30% down for some of the more overblown new developments in dodgy places, 10-15% down across most of the Royal Borough and Westminster, and steady – and sometimes up – for some of the air conditioned lateral flats in prime locations so beloved by the footloose international wealthy. This has been uncomfortable for developers (the reality is that the days of the up-market developer of single houses are over) and agony for operationally geared estate agents for whom turnover is lifeblood: the share prices of Foxtons and Countrywide (both a quarter of what they were three years ago) and redundancies at all levels from partners in the more traditional agencies downwards, express this eloquently.
The days of the up-market developer of single houses are over
Brexit, as a harbinger of doom in the property market, has turned out (so far) to be something of a pantomime villain in that the dire warnings of ‘Project Fear’ have yet to come to pass. Where it has really made a difference is in the currency which has had three effects. The obvious first is to make the UK a lot cheaper for any dollar-thinking buyer. What is less appreciated is that, if those same dollar-thinkers are sellers, they are looking at a commensurate loss and are unwilling to take the hit. This has resulted in the third effect of tightening the market with more buyers and fewer sellers. This means an upward pressure on prices that seems counter intuitive – but which has been borne out in the autumn market.
Building costs have ratcheted up year-on-year in London to the point where many previously viable projects have been called into question or cancelled. One only has to look at the number of cranes decorating the London skyline to see that these costs, which have been inflating at the same rate that end values have been going the other way, are not going to fall any time soon.
Building costs have ratcheted up year-on-year in London
In our last Market Comment we talked at length about Crossrail 2 and its impact on Chelsea. Needless to say, the residents have been up in arms about it – while local businesses have been mainly supportive. Currently all rail passengers for Chelsea (which includes staff for three hospitals) have to funnel through the decrepit Victoria and Clapham Junction stations and on to the underground system. However, it won’t be residents’ noise that kills off the proposed station – but cost. The Treasury has demanded a £4bn saving on the project and one of the low fruits is the Chelsea station costing an estimated £900m (mainly on the grounds that there is little potential for extra housing surrounding it). The impact of the station would actually be quite limited as nearly all of it would be underground – and many of the more vocal elderly protesters probably won’t be around if it opens in 2030.
The low fruit is the Chelsea station costing an estimated £900m
In the same area, the Chelsea Barracks site (the first phase anyway) is now up to full height and the feared visual impact on the Royal Hospital opposite, is in reality, minimal.
Chelsea Barracks site, first phase
If you look south you are reminded that the current view is not exactly the finest that London has to offer...
South of Chelsea Barracks, Chelsea Bridge Road
Further west, the travails of the Earl’s Court redevelopment have been publicly on display in the write-downs on the project that Capital and Counties (Capco), the principal developer, has had to endure. This is a huge project: 77 acres and now around 10,000 units. To put this in perspective, the Cadogan Estate, which stretches from Albert Bridge to Knightsbridge, is about the same size. Lillie Square, next to the railway line on the Lillie Road and the first stage, is now well out of the ground and has been selling at around £1,450 per square foot.
Lillie Square – first stage Earl’s Court redevelopment
The demolition of the old Exhibition Centre is completed, but the problem has been the snail’s pace of sales: only one unit a week at one point – though this accelerated in the autumn. Capco deserve to make a success of this as they are a class act and have proven their placemaking abilities in Covent Garden where they have approached it with the same long-term thinking as the traditional London estates. Their proposals for the main part of the site show this.
Demolition of the old Exhibition Centre
Proposals for main part of Earl’s Court redevelopment
On the subject of placemaking, the big news of the autumn was of Apple taking nearly all the office space in the Battersea Power Station. This should guarantee the success of the project overall as it will feed the other commercial – shops, restaurants and bars – that will make it a destination and a pleasant place to live rather than merely canyons of apartments with the lights off. The first residential stage is now up. The best thing that can be said about it is that the Frank Gehry designed second stage will be a lot more interesting.
Further down the road, the new American Embassy is now fully formed and stands out as an arresting building.
American Embassy, Nine Elms
It is surrounded by a sea of second-rate boxes that it is rather amazing that any architect owns up to. They had plenty of time to get it right.
Apparently, when the first designs for the Embassy were submitted, there was an area surrounding it which was labelled ‘Kill Zone’ – which caused something of a stir in the Wandsworth planning committee...
In Mayfair the plans for the old American Embassy have been revealed. The architect is David Chipperfield and it will be a 137 room hotel with five restaurants.
It is owned by Qatari Diar who must be getting punch drunk with planning issues in London after Prince Charles scotched their original Richard Rogers’ scheme for the Chelsea Barracks. The Embassy, designed by Eero Saarinen and completed in 1960, was listed just before they bought it: afterwards might have ruined their love affair with London. It will be a relief for anyone who has anything to do with Mayfair when the Embassy moves this year as the security that has blighted the surrounding streets will go with it.
Old American Embassy, Mayfair
Mayfair (and St James’s) used to be the major London hub for art dealers, clustering around Christie’s and Sotheby’s (and now Phillips). Not any more. The insatiable demand for retail space from international retail brands is pricing them out and, in the process, altering the tone of the neighbourhood. The scale of the demand is illustrated by the record £2,225 per square foot paid in Bond Street by Ralph Lauren. That is the rent per year for the first 30 feet into the shop known as Zone A. Many of the exiles from Mayfair will be surfacing opposite our offices in Cromwell Place, South Kensington, where John Martin Galleries are working with South Kensington Estates to create 35,000 square feet of space with 30 permanent galleries.
Cromwell Place, South Kensington
It is so often the commercial that drags the residential behind it. On a larger scale you have the impact of a major company taking huge space – Google in King’s Cross and Apple in Battersea are obvious examples. But it is also when a major building dominates an area. It will be interesting to see if the ‘Paddington Cube’ (to be developed by Irvine Sellar of The Shard fame) will do the same for Paddington. The original scheme, known as the ‘Paddington Pole’, was shouted down as being too dominant for the area.
The Paddington Pole
The Paddington Cube
The problem with Paddington (and Victoria) is the number of cheap hotels that have traditionally proliferated around stations which do little for the quality of either the restaurants or the retail. Simply building towers of residential flats with the lights off (Paddington Basin?) doesn’t change that dynamic – whether it’s a pole or a cube. If the market was a free one, most of these hotels would have been converted into flats during the boom of the last 30 years – but planning keeps them as they are and their down-market effect on the area is not going to diminish any time soon. This is why Pimlico has been ‘up-andcoming’ ever since we can remember.
A history of planning applications puts many buyers off
The threat of unwelcome planning permission is becoming a real issue in many parts of the country market. Every owner of land sees a pot of gold in their plot, and the boundaries of the local plan are being tested daily across the country. The problem is not so much that it happens – most of the time it doesn’t – but a history of applications puts many buyers off. A good example of this is in the area below the Cotswold escarpment around Evesham which contrasts with the Cotswold Area of Outstanding Natural Beauty where there is a presumption against development. There has always been a pricing difference between the two – but fear of planning has made this noticeably wider.
The country market is also subject to the effect of a local draw that attracts metropolitan buyers seeking some of the sophistication of their London haunts in the country. The opening of the Hauser and Wirth gallery in Bruton, Somerset is a good example. Another one is the Great Tew Estate in Oxfordshire where Soho House have opened their latest outpost called, surprisingly, Soho Farm House. This part of the world isn’t short of buyers and owners whose primary stamping ground is Notting Hill but it has now also become the go-to place for the glitterati – including the Beckhams.
Soho Farm House
A year ago we opined that the new kid on the online estate agency block, Onthemarket.com, would be eating the lunch of the two market leaders, Rightmove and Zoopla. What has actually happened is that Rightmove has consolidated its position as market leader and now has a market capitalisation of £3.7bn. Zoopla is on £1.5bn and Savills, a worldwide, multidisciplinary agency is priced at only just over £1bn. Onthemarket is owned by estate agents and ‘not-for-profit’, which should have given it real teeth in its attempt to take a bite out of Rightmove’s huge margins, but what has happened is that with Onthemarket’s policy of letting their agents choose one other online offering, Rightmove has been the preferred choice. Zoopla has been the loser – but is still the number two – and Rightmove has become even bigger. We watch developments with interest.
The truth is that sellers have had to share the burden in the form of price reductions. Where they have yet to smell the coffee, their houses linger on the market unsold
At the beginning of last year we felt that the market towards the end of 2016 would be stronger than many imagined. This was because we thought that, by then, buyers would be getting used to the penal stamp duty regime and needing to get on with their lives. ‘Getting used to’ is probably the wrong phrase as all buyers hate and resent stamp duty at these levels (many fail to factor in the second home surcharge) and look for any means possible to mitigate it. The truth is that sellers have had to share the burden in the form of price reductions. Where they have yet to smell the coffee, their houses linger on the market unsold – adding to the tightening of the market that we alluded to earlier. So far this year, it looks as if this pattern will continue – as long as financial markets stay upright.