The Road to Megacity Status

London stands at an exciting, but daunting, crossroads. With its population accelerating toward megacity status, the city faces a trifecta of challenges: housing its growing population, powering its expanding footprint, and modernising infrastructure to keep pace with global competitors.

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A City at it's peak - and growing

London’s population has reached an all-time high, now standing at 9.1

million. Within the next decade, it is projected to surpass the 10-million mark, officially classifying it as a megacity. This 10% increase – the equivalent of absorbing a city the size of Frankfurt – poses a seismic shift in the city’s dynamics. While it’s easy to envision London’s potential as a thriving megacity, the challenge lies in how to make that vision a reality.

Housing, power, and infrastructure 

London’s transformation hinges on addressing three interlinked issues: housing, power, and infrastructure modernisation. These challenges are not unique to London but are amplified by its history, density, and global importance. Massive investments will be required across these sectors to unlock new opportunities and accommodate the city’s growth, thus sustaining its global competitiveness.

In Paper 4 of our Insight Series we look in more detail at these challenges, and at some of the possible solutions and opportunities for targeted investment and innovation in sectors like real estate and sustainable infrastructure that will allow London to reimagine itself as a modern megacity that appeals to global investors, businesses, and talent.

Power and infrastructure: The foundation of a Megacity

Perhaps the most critical pillar in London’s megacity ambitions is the overhaul of its power and infrastructure systems. Effective urban planning and sustainable investment are essential to creating a resilient city capable of handling the demands of a megacity. David Goatman, Head of Energy and Natural Resources at Knight Frank, underscores this urgency:“Access to sustainable energy and the infrastructure required to distribute it effectively is one of the most important factors in London’s continued success as a city,” he says.

Retrofitting an aging city like London presents unique challenges, from funding and planning to closing the skills gap. The interconnectedness of energy and development is already evident. In 2022, the Greater London Authority (GLA) warned housing developers in west London that grid capacity issues, driven by the concentration of data centres, could delay or prevent new housing projects.

These pressures are only likely to intensify. Knight Frank forecasts that by 2026, London data centres will total 1.7 GW, up by 28% compared with current levels, accounting for the power usage of approximately four million households.

Additionally, the race to net zero targets is adding further pressure and causing delays in development projects due to increased electricity demand as sectors transition to electric power. Consequently,
there is a heightened need for new infrastructure to support this surge. This is placing additional pressure on the grid, which is already struggling to keep up with the rapid pace of change.

Projections from the GLA’s London Infrastructure Plan suggest that a 20% increase in energy supply above current capacity is needed by 2050. Long-term solutions like reinforcing the grid and adopting new technologies, such as small modular reactors, are crucial to meeting this demand. Without decisive action now to address longer term supply needs, London risks lagging other global cities.

“Long-term there needs to be huge reinforcement, particularly as we transition away from gas boilers in new homes and offices” David adds. “We have been working with councils in west London to identify semi-rural land for solar and wind, but this isn’t a long-term solution. For that, bigger picture thinking is needed. We have been working with GB Nuclear, for example, to identify sites for small modular reactors.”

Transport: Unlocking connectivity and opportunity

It is also not just about power. London’s transportation network requires significant enhancements to meet future demands. Last year, 3.6 billion journeys were made using Transport for London (TfL) services. The GLA predicts a 50% increase in public transport capacity will be needed by 2050.

Projects like Crossrail 2 can alleviate congestion, enhance connectivity, and unlock economic potential in underserved areas. The transformative impact of the Elizabeth Line demonstrates the power of infrastructure investment, having supported nearly 200,000 new office jobs, 171 hotels, and thousands of new food and beverage outlets. For real estate developers, there is also clear evidence that improvements have led to localised rental outperformance.

But enhancing transport infrastructure is not just about mobility; it’s about creating vibrant hubs for work, living, and leisure.

“The London market has become increasingly polarised,” says Phil Hobley, Head of London Offices.

“The prime market is seeing heightened levels of demand, a deepening imbalance between supply and demand and, consequently, further upwards pressure on rents. We expect the quality bifurcation of the office market to intensify, with occupiers sharpening their focus on office space which meets their sustainability ambitions and provides a high level of amenity to support increased office utilisation rates and enhance employee wellbeing.”

Housing: Meeting the Megacity mandate

London’s housing crisis is perhaps the most visible and contentious issue on its path to becoming a megacity. House prices now exceed 12 times the average annual wage, while rents have surged by more than 25% in the past five years. The capital added just 32,000 homes last year, far short of the 81,000 annual target set by the Labour government to meet future demand. In the short to medium term, the market is braced for a further supply crunch, with completions in the capital coming under particular pressure looking further out. Only 6% of private sites under construction in London right now are scheduled to run into 2027, according to data from Molior.

Beyond that, there are planning consents across Greater London for over 270,000 new homes, the Molior data shows, though that will include some old planning permissions that were never very likely to progress, as well as others which might have been speculative in the first place, or for schemes that have since been dropped. Just over a third are on sites where there is an active existing use.

Key to ensuring the pipeline comes forward in future years will be conducive policy and market conditions, both of which have become significantly more onerous in recent years. Build and construction costs remain high, building regulations have shifted, affordable housing requirements have become more stringent. All of this has impacted viability.

To ease some of the blockage, there are options. One is to ease viability by loosening some of the obligations that were conditions of their planning consents. That could mean supplying less affordable housing than originally agreed. The other option is for more public money to be invested in dormant schemes.

Regardless, what is clear is that to address the shortfall of supply relative to demand as London continues its journey to megacity status, a rethink is needed in terms of an approach to housing delivery. This includes reforming planning processes, energizing urban centres, and leveraging public-private partnerships. Development corporations, with their ability to streamline complex projects and unify public and private efforts, offer a promising model for large-scale housing initiatives. Stuart Baillie, Head of Planning at Knight Frank, highlights the need for flexibility: “To unleash London’s full potential, there has to be some flex to the current system – whether that’s around affordable housing requirements or a retrofit-first policy approach,” he says.

Beyond volume, the city must focus on building diverse, high-quality housing that meets the needs of its residents. Unlocking public sector land for development and intensifying the use of existing sites can provide significant opportunities for growth. By combining publicly owned land with private sector expertise, London can deliver affordable and sustainable homes at scale.

Its inevitable too that some green belt land must be released for development. The Government has identified ‘grey belt’ as a category of land within the green belt that could be released. Such sites might help address London’s residential needs but could also create opportunities to relocate other land uses such as employment, logistics or bus depots into the grey belt meaning that existing urban locations could then be opened up for residential development. 

Previous Knight Frank analysis of London’s green belt identified as many as 4,612 previously developed sites which could be suitable for housing.

It is more nuanced than just adding volume, however. The right type of homes need to be built in the right places and at sufficient scale. As a result, a key component of expanding supply as London heads toward megacity status will be embracing a variety of tenures – and collaboration between the public and private sector.

Based on existing tenure distributions in London, for example, and assuming annual housing targets are met, more than 250,000 new private rental homes including student housing are needed over the next decade, alongside new affordable homes and private for sale units.

Encouraging more institutional investment into the market to support this delivery will be crucial.

Opportunities in office obsolescene

These investments aren’t just about functionality; they’re about creating vibrant, interconnected hubs for living, working, and leisure.

Here, we see an opportunity to repurpose potentially obsolete commercial space. We have identified 10.6 million sq ft of offices in London which may have repurposing potential. For this analysis, we have focused on buildings built before 1990 with low energy ratings (EPC D and below) and floor plates under 14,000 sq ft. While this represents just 4% of London's office space, in areas like Marylebone, West End Core, Knightsbridge, Chelsea, Soho, and Fitzrovia, suitable buildings exceed 10%.

As well as helping to address the chronic housing shortage in the capital, the delivery of homes through repurposing ticks a lot of sustainability boxes for investors and developers.

On the “E” side, repurposing buildings means we can deliver housing tenures with a lower embodied carbon footprint and use existing developed land rather than taking greenfield sites. While addressing and delivering a range of housing types as well as traditional ‘for sale’ homes – student beds, co-living spaces, affordable homes, build-to-rent (BTR), and single-family residences – is crucial to support social outcomes.

Partnerships: Collaboration across private and public sector is key 

Ultimately, conventional approaches to housing delivery – which predominantly rely on either the private or public sector to deliver in isolation – are unlikely to meet the magnitude of this task. What is needed is a ‘rapid build revolution’ that adopts alternative delivery approaches capable of creating the kind of living and working places we all desire, while also boosting scale and accelerating the pace of delivery.

Central to achieving this step-change in delivery will be partnerships between the public and private sectors.
Development corporations have the potential to simplify and accelerate the delivery of large scale and complex developments. Development corporations can facilitate a shared vision, bridging the gap between the private and public sectors, both of whom face challenges in isolation and can have conflicting motivations.

“This collaboration is essential as local authorities/local councils may lack comprehensive development expertise and experience, while private developers often prioritise narrowly focused commercial developments that may not meet an area’s wider needs.” says Ian Tasker, head of Public Sector at Knight Frank. “Development corporations can provide a focused and time-limited approach to achieve a comprehensive vision for an area, supported by dedicated skills, expertise and resource.”

For larger scale projects, various barriers need to be addressed to facilitate delivery of development, including enabling infrastructure, land consolidation, and accessing public and private sector funding and finance.

“Development corporations, as public sector entities, can overcome these barriers by utilising a range of powers, such as planning, utilities and land acquisition,” Stuart adds. “Additionally, they can secure public and private sector finance and implement fiscal measures to retain revenues locally, which is particularly beneficial recognising the on-going strain on local budgets.”

Stuart adds that: “An advantage of Development Corporations’ Planning Committees is that they are not as beholden to the political short-termism and uncertainty that besets Local Authorities and there is a greater level of commitment to delivery targets which provides greater confidence to Applicants.”

There is an urgent need for new delivery models to address housing and related infrastructure delivery at scale and pace.

“London has one of the most successful track records of setting up Development Corporations that deliver,” Ian says. “They benefit from long-time horizons which cut through short-term political cycles, while also benefiting from their ability to cut through red tape.”

Driving efficiency in the public sector estate

Another of the most significant opportunities lies in harnessing public-private partnerships to unlock the potential of public sector land for housing development. By collaborating with private developers, the public sector can ensure the delivery of affordable and high-quality homes while retaining a stake in the land.

Successful examples include projects where surplus land owned by Transport for London (TfL) or local councils has been used to build housing developments, blending market-rate and affordable units. Delivering higher densities by building over and around transport nodes stand as clear opportunities not only for retail and leisure development but increasingly housing.

Our wider analysis of public sector assets, which included land belonging to the Greater London Authority (GLA), and other central government departments has identified around 108,000 acres of land across London. Many of these sites will already be in existing use, but some could come forward for development through re-prioritisation or reprovision of services, or through site intensification.

Combining publicly owned land with private housebuilder expertise presents a unique opportunity for long- term collaboration to deliver the homes that the capital needs. 

“A more cohesive approach is needed, and one which utilises private sector strategic management techniques,” according to Ian. “That can be about driving efficiencies across public sector estates, reducing footprints or simply to get capital receipts to reinvest elsewhere. Ultimately, driving efficiencies across the public sector will result in the release of a huge amount of land for other use classes, be that for public sector housing or commercial office space.”

A vision for London as a Megacity

To transition into a megacity, London must address the interconnected challenges of housing, power, and infrastructure with innovation, investment, and inclusivity. 

By increasing housing supply, transitioning to renewable energy, and modernizing its infrastructure, London can set a global standard for sustainable urban development. The city’s journey to megacity status is not merely about growth but about creating a liveable and resilient future for all its residents.

View the London Series