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

Posted by Knight Frank Newcastle on 21st February 2025 -

From volatile interest rates and economic uncertainty, to regulatory changes in building costs and chronic land supply shortages, the UK property market has weathered significant challenges in recent years.

Despite these factors testing the market's resilience and development viability, London's housing market has managed to demonstrate remarkable staying power.

While Prime Central London may see a more measured recovery in the near term, influenced by changes to overseas investor taxation and elevated stamp duty rates on second homes - the outlook remains positive. Knight Frank forecasts 2% growth in 2025, supported by Prime Central London's enduring appeal to a diverse international buyer pool and projected increases in global wealth creation.

In this piece, Nick Alderman, Head of Central London Land outlines five reasons why London's land market presents an attractive opportunity for developers looking to expand their portfolio in the capital.

1. Global Appeal

London is a global financial and cultural hub known for its stability, transparency, and high demand for housing. The capital benefits from a unique market composition, characterised by a higher proportion of cash buyers and a more diverse international investor base.

The capital's population is projected to grow by over a million by 2041, yet housing delivery remains significantly below target. With completions declining and new starts dropping to their lowest level in 14 years in 2024, we're seeing a widening gap between supply and demand that creates attractive opportunities for developers willing to take a longer-term view.

2. Robust Land Values

Despite ongoing economic pressures, Prime Central London Land values have demonstrated remarkable resilience in a challenging market landscape. While land values across England have experienced significant declines, with the broader market seeing approximately 20% reductions, PCL has maintained a more stable trajectory. Values have fallen by just 5% over the past two years.

According to our Land Index & Housebuilder Survey Q4, land values across England and Prime Central London remained stable in Q4 2024, with developers anticipating a steady market in early 2025. The view from over 50 volume and SME housebuilders across England showed that 65% of respondents expect land pricing to remain flat in Q1 2025, with 20% anticipating an increase and only 15% expecting a decline.

3. Evolution of Buyer Preferences

Our latest sentiment survey of over 300 UK-based individuals revealed that London buyers are increasingly drawn to new build properties, with energy efficiency, absence of seller chains, and financial incentives being key drivers. This shift in consumer preference towards new builds is more pronounced in London than across the wider UK, partly due to higher competition and affordability pressures in the city.

Moreover, there's been a notable revival of interest in residential schemes in financial districts, with these areas now attracting a wider demographic. Larger units are selling faster than one-bed apartments, indicating a sustainable demand for family-sized homes in well-connected locations.

4. Strong Rental Market

The rental sector offers compelling opportunities for developers to retain stock and build dedicated rental platforms. With London rental growth outpacing house prices and projected to rise 5.5% this year, Build to Rent and Purpose-Built Student Accommodation schemes are attracting strong interest. In addition, prime market land deals increasingly favour rental model developers over traditional build-to-sell approaches. The Renters' Rights Bill and stricter environmental requirements are likely to further reduce private landlord stock, bolstering demand for professionally managed rental properties.

5. Emerging Opportunities in Property Conversion

While permitted development isn't a complete solution to London's housing shortage, suitable buildings with appropriate floor plates present viable opportunities for repurposing through streamlined planning. The government's March removal of 1,500 square metre caps on office-to-residential conversions has expanded possibilities significantly. Our analysis of Molior London data, shows conversion applications reached 3,272 between mid-March and mid-November 2024—nearly 60% above pre-pandemic levels.

Looking ahead

We're seeing encouraging signs in the land market since the launch of the NPPF, the proportion of housebuilders citing planning delays as their primary concern has dropped to 70%—a three-year low which is a positive step.

Our latest Land Index & Housebuilder Survey Q4 shows over 60% of respondents indicate that interest rate cuts and decreased land pricing would boost their development appetite this year. This provides further optimism as the Bank of England cuts interest rates for the third time in just over six months, leaving the base rate at 4.5%. As we progress through 2025, further rate cuts are expected as the Bank of England contends with signs of a stagnating economy. This is positive for borrowers - interest rates are moving in the right direction, albeit slowly.

Despite on-going challenges including construction costs and planning delays, London remains a world-class city offering unique opportunities for developers. With housing delivery significantly below both the London Plan's target of 52,300 homes annually and the mayor's elevated goal of 81,000, there's substantial scope for developers to help meet this pressing need.