Forestry, country house and res dev land market focus

Residential development land

Confidence and momentum is returning to the land market amid stronger forecasts for the UK economy and extended government support measures. But a lack of available land and issues driven by the Covid-19 pandemic remain a challenge, as reflected in the first edition of our quarterly Residential Development Land Index Survey of nearly 50 SME and volume house builders.

Land prices were broadly flat across the board in the first quarter of 2021. Urban brownfield and greenfield land values nudged up slightly between January and March by 0.2% and 0.9% respectively. However, on an annual basis values are 2.2% and 4.8% lower respectively.

There continues to be demand for good strategic greenfield land, with agents reporting some house builders only have a limited supply coming through their pipelines. The Q1 survey found that around 30% of respondents were seeking strategic land.

By region, new land supply in the south-east is particularly constrained. While some large urban expansion parcels have emerged in the region, availability remains limited in the core home counties markets. In the north-east, activity has also notably picked up, with a lack of supply driving the market. However, regional builders have not lowered profit margins to compete with the nationals, indicating a slightly less competitive environment. 

This ongoing lack of supply is also a reflection of planning delays, agents report, which is limiting land being allocated in local plans across England. Planning delays and a lack of available land were identified as the two most challenging factors for housebuilders in Q1, our survey confirmed. The next most pressing issues were all Covid-related, from legal delays in the transaction process to the medium- to long-term outlook for the UK economy and supply shortages of key building materials. 

Landowners also need to think about potential upcoming tax changes as the government is looking at securing more revenue from capital gains tax. This is encouraging some to sell land ahead of these potential tax changes.

——Anna Ward

Country houses

The enduring escape-to-the-country trend that emerged from the pandemic after the UK’s first lockdown in 2020 continues to drive significant demand, as buyers seek space and greenery.

The number of offers accepted by Knight Frank’s country house teams in April 2021 was the highest in ten years.
Annual price growth in prime regional markets outside London was almost 7% in the 12 months to March 2021, its highest level since before the global financial crisis.

The higher-value end of the market continues to perform strongly, as it has done since the market reopened on 13 May 2020. Buyers have continued to seek more space, greenery and privacy post-pandemic, exploring a new work/life balance that could see many working from home more often after current restrictions end in June. 
This last point is likely to see the traditional commuter belt redrawn and presents an opportunity for the rural property market in the long term.

Country homes valued at £5 million and above saw average prices increase by just over 7% in the first three months of 2021, taking the annual rate of growth to almost 16%, with tight supply a contributing factor. Price growth for higher-value properties has been weaker than the wider market in recent years due to a series of tax changes, leaving greater scope for rises. 

However, supply in the country market has tightened in recent months. This is due to a combination of concern over new Covid-19 variants and the challenges of homeschooling, which led to pent-up supply as sellers held off during the latest lockdown. This will have delayed some sellers’ preparations for the spring market. Some prospective sellers have also been reluctant to list without somewhere to move to. 

Supply is likely to increase, though. Market valuation appraisals moved ahead of the five-year average at the start of March for the first time in 2021, and have continued to climb since. Appraisals take place when owners want to know the market price of their property before listing, and are a leading indicator of supply.

——Chris Druce

Forestry 

Accurately gauging market values for the UK’s commercial woodlands is becoming increasingly difficult. With a number of funds investing aggressively in the sector and fighting over an extremely limited number of properties for sale, guide prices are being routinely exceeded, often very significantly, and even on blocks of woodland that in the past would have been considered less desirable due to issues such as access. Past performance is certainly no guide to current pricing.

Last year around £200 million worth of forests were traded, equating to about 40,000 acres, with the majority of deals happening in Scotland. Prices of up to £12,000/acre are being paid for standing timber plantations. Although at these levels yields in some cases can be as low as 1%, low-interest rates, the impact of quantitative easing, improved tree species genetics, increasing global timber demand, the environmental, social and governance (ESG) agenda, and woodland’s reputation as a countercyclical investment continue to attract investors.

Interestingly, younger plantations often command the highest prices. The market view is that there will be a global timber deficit in 15 years of more than 1 billion cubic metres, which will coincide with the period when these currently less mature trees are ready to harvest. By 2050, some predictions put global timber demand at over 13 billion cubic metres, compared with less than 4 billion cubic metres in 2010.

Although the market for carbon credits is driving demand for land suitable for new planting, existing trees are not eligible for such schemes. However, the wider ESG agenda, as mentioned earlier, has focused attention on wood as a more environmentally-friendly building material, which is being encouraged by the English, Scottish and Welsh governments. The other natural capital benefits offered by existing plantings, such as flood mitigation, renewable energy and biodiversity creation all add to their perceived attractiveness for funds. 

——Andrew Shirley