Author: Matthew White, Partner and Head of Planning, Real Estate, London
In the week before Christmas, the daffodils were blooming, the birds were chirping and it was warm enough to cycle to work in shorts. In the week before Easter ... well, nothing much has changed. And that pretty much sums up the development market in Q1. Transactions held over from December were duly completed, but the dealflow since then has been been falteringly slow.
MIPIM, always a good barometer of market sentiment, was summed up by the weather too - it was not nearly as balmy as expected and left you feeling let down and a bit foolish that you'd brought your sunglasses.
Much of this is being driven by Brexit. Whilst I don't think the vote will make a big difference to development in the UK either way, it is the uncertainty of whether we will end up in or out that is causing stasis. Like Schrodinger's cat being alive and dead at the same time until the box is opened and the quantum waveforms collapse, investment decisions are quite reasonably being held back until the outcome of the referendum is known.
In London, we also have a Mayoral election to contend with. Ken Livingstone and Boris Johnson may have been at opposite ends of the political spectrum, but both were firmly pro-development. Looking at Sadiq Khan and Zac Goldsmith on the hustings, I am not convinced that the next four years will be quite so developer-friendly.
Development has always been a Q2/Q4 business of course, so a slow winter is not that unusual. This feels like a pause for reflection rather than a sign of deeper retrenchment. To lift a metaphor off the back of England's Grand Slam victory, we're just waiting for the referee to call "set" before the front row engages again.
So, here are my predictions for Q2:
- The UK votes to stay in the EU by a 10 point margin - enough for David Cameron to remain in office, but not enough to prevent Boris Johnson usurping George Osborne as his heir apparent.
- Sadiq Khan will narrowly win a tighter than expected Mayoral election. Once in office, bold campaign policies such as a fixed 50% affordable housing requirement and a ban on marketing new flats abroad will be tempered with more flexibility.
- Benchmark land values for residential will continue to drop off marginally, but a wave of private rented sector (PRS) investment funding will continue to drive development.
- Residential development land supply will be dominated by sites released by the public sector, so procurement and state aid rules will be at the top of everyone's CPD requirements.
- The Housing and Planning Bill will receive Royal Assent, but implementation details will remain opaque until much later in the year.
- No announcement will be made by the Government on a new runway at Heathrow or Gatwick.
- Talk will increasingly move towards planning for the next office cycle in London.
- Tottenham Hotspur will win the Premiership!
Happy Easter everyone.
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