London residential development Q1 2020
The pandemic introduces additional risks to the Central London new build market, on top of its general impact.
Molior reported a strong start to 2020 in the London development markets, noting the highest quarterly sales volume for two years. Completions and sales ticked up on a rolling annual basis, as shown in Figure 1.
In total, over 60,000 units were under construction when the lockdown hit in late March. Many sites stopped work quickly, with some operations continuing where homes were close to completion. The nature of the Central London new build market is such that the Coronavirus pandemic introduces additional specific risks here on top of its general impact.
In the short term, the nature of high-density urban development makes construction work under social distancing conditions more difficult compared to traditional new build housing, so it may take longer for all sites to be reopened. International travel has been hugely limited under the lockdown and this could have an impact on overseas demand for new homes, traditionally an important source of demand. Domestic demand could be affected by poorer income prospects for London’s employees, particularly for higher earners where bonuses may be reduced as part of any Government support for businesses.
Longer term, the crisis has quickly forced many firms to cope with much higher levels of home working. If this does not fully revert, it could change demand for living in London for workers who prefer the countryside. This ties into a demand for more space (particularly gardens) and a potential desire to avoid densely populated areas and public transport.
Until there is a clear exit strategy it remains to be seen how much of a negative shock on both supply and demand these issues amount to. But the downside risks to this market could be large if COVID-19 is not brought under control quickly.