5 Reasons Why Developers Should Bet on London's Resilient Land Market

Despite volatile interest rates, economic uncertainty, rising build costs and a shortage of land, London's housing market has proved resilient. Knight Frank expects Prime Central London prices to grow by 2% in 2025, although recovery there may be slower because of changes to overseas investor taxation and higher stamp duty on second homes. Nick Alderman, Head of Central London Land, sets out five reasons why the capital's land market remains attractive to developers.

First, London's global appeal. It has a high share of cash buyers and a diverse international investor base. Its population is expected to grow by more than a million by 2041, yet new housing starts fell to a 14-year low in 2024, widening the gap between supply and demand.

Second, resilient land values. While land values across England have fallen by around 20%, Prime Central London values have dropped by only 5% over two years. Knight Frank's Q4 survey of more than 50 housebuilders found 65% expect land prices to hold steady in Q1 2025, 20% expect a rise and 15% a fall.

Third, changing buyer preferences. A survey of over 300 people found London buyers increasingly favour new builds for their energy efficiency, lack of chains and incentives. Larger homes are selling faster than one-bed flats, and residential schemes in financial districts are attracting a broader range of buyers.

Fourth, a strong rental market. London rents are forecast to rise 5.5% this year, supporting Build to Rent and student accommodation schemes. The Renters' Rights Bill and tougher environmental rules are expected to shrink private landlord stock, adding to demand for professionally managed homes.

Fifth, conversion opportunities. The removal of the 1,500 sq m cap on office-to-residential permitted development has widened options, with 3,272 conversion applications between mid-March and mid-November 2024, almost 60% above pre-pandemic levels.

Looking ahead, the share of housebuilders naming planning delays as their main concern has fallen to 70%, a three-year low, and more than 60% say lower rates and land prices would increase their appetite to build. With the Bank of England base rate at 4.5% and further cuts expected, and delivery well below the London Plan target of 52,300 homes a year and the mayor's goal of 81,000, Knight Frank sees substantial scope for developers in the capital.

Source: Knight Frank Newcastle, original article (21 February 2025)