The Autumn edition of the London Development Barometer (LDB) survey has found that 59% of the respondents believe that staying in the EU would be the most advantageous outcome to London development activity. The survey was administered in the October 2019, at a time when the U.K. government was attempting to negotiate a revised Brexit deal before the October 31stdeadline. In this context, 23% of the respondents indicated no preference to staying in the EU, leave with a deal or leave without a deal, as long as some clarity is achieved. Just 5% believed London’s development activity is best served by a no deal Brexit.
The LDB was launched in Autumn 2017 to gauge industry sentiment across a number of factors affecting London development activity. Although fears around Brexit have allayed since then, Brexit has consistently been cited as the one of the industry’s top two concerns. 76% of the respondents still believe that the former will have a negative impact on London development activity, compared to 80% two years ago.
This reflects the industry’s glum outlook on the benefit of the Article 50 extension six months ago. At that time, 48% of the respondents did not believe the extension would lead to a better deal, while 36% did. Almost 60% agreed the ongoing uncertainty would have a negative impact on development activity, while 13% foresaw a positive impact.
With the Brexit process still at a stalemate and geopolitical tensions such as trade wars ongoing, key indicators suggest that the impact of global economy and politics are being felt by the industry. 63% believe the global economy will have a negative impact on development activity, increasing from 52% six months ago and 42% one year ago. Similarly, 57% believe global politics will have a negative impact, compared to 48% six months ago and 50% a year ago.
Alongside Brexit, construction skills and capacity continues to be one of the industry’s top two concerns, with 75% believing it will have a negative impact on development activity. This compares to 85% one year ago and 78% two years ago. Construction cost is third, with 63% predicting a negative impact on London development activity.
In line with recent dips in foreign investment into London, just 42% believe inward investment levels will either increase or stay the same, compared to 64% six months ago and 51% one year ago. Asia is expected to be the largest investor according to 73% and the Middle East is in second place at 15% and The Americas in third with 7%.
The outlook for development finance is also on the decline, with 71% predicting it will become more expensive and only 27% of the view it will become more readily available. These figures were at 65% and 37% respectively six months ago, when the outlook for finance had shown signs of improvement from one year ago.
Nonetheless, the industry’s overall cautiousness surrounding London development activity has levelled with 43% believing there will be less development activity in the next five years, compared to 46% a year ago and 57% two years ago.
Confidence in market demand also remains overwhelmingly positive. 89% and 85% predict an increase in demand for senior living and affordable/council housing, increasing by 5% and 11% in the last six months, respectively. 78% continue to predict an increase for build to rent, while confidence in all other sectors were positive on balance.
Retail remains the exception, with an overwhelming 86% predicting a decrease in market demand, and just 3% predicting an increase. Several respondents have noted that repurposing vacant retail units are as a result on the rise.
Confidence in mayoral polices has improved significantly with 47% predicting a positive impact compared to 35% six months ago. 65% believe government investment will have a positive impact, up from 55% six months ago, while 68% still predict that Crossrail 2 will have a positive impact on development activity, although that has slipped from 77% one year ago.
The industry’s view of government remains dim, with 80% believing they are not doing enough to enable development in the capital. Improving the town planning processes continues to be the industry’s top priority for government, with calls to mitigate the Brexit transition period in second place and funding for local authorities, infrastructure and housing delivery in third.
Richard Hollingworth, director, M3 Consulting:
“Whilst London remains a globally important destination for real estate investment, decision makers appear to be hesitating whilst a Brexit resolution remains just out of reach. Nonetheless, the industry continues to show signs of optimism, as confidence in market demand is still high across most sectors and the outlook for development activity remains relatively steady.”
M3 Consulting is an independent development and project management business.
The bi-annual LDB was launched by M3 Consulting in autumn 2017 to track the changes in market sentiment from property specialists and decision makers involved in London development activities.