The spring 2019 edition of the bi-annual London Development Barometer (LDB) survey by M3 Consulting was taken in mid-April to compile a snapshot of market sentiment just after the announcement of the latest Brexit extension. The overall verdict is somewhat reflective of the Brexit impasse: 48% of the respondents do not believe it will lead to a better deal versus 36% that do. 16% say they do not know.
However, a clear majority of nearly 6 in 10 agree that the ongoing uncertainty will have a negative impact on development activity over the next five years. This compares to just 15% who believe it will have a positive impact.
Despite the topsy-turvy Brexit landscape since the autumn 2018 LDB six months ago, key indicators suggest that the effect of it is not expected to be overwhelmingly prohibitive. While a majority of 43% of the respondents believe London development activity will decrease over the next five years, this is a marginal improvement over 46% six months ago, and a marked improvement over the 57% who thought the same in the first edition of the LDB in autumn 2017. Moreover, 32% of the respondents now believe there will be more development activity in the capital, compared to 29% six months ago, and 19% in autumn 2017.
The industry also remains confident about foreign investment levels with 64% of the respondents predicting they will stay the same or increase after Brexit, up 13% from six months ago. Asia is predicted by 74% to be the primary source of inward overseas investment.
The industry is also slightly more optimistic when it comes to development finance. 65% of the respondents predict an increase in the cost of finance compared to 75% six months ago, while 37% believe there will be an increase in availability of finance, compared to 30% six months ago.
Although confidence in market demand for every sector except retail remains positive on balance, the percentage of respondents who predict an increase in several markets has fallen compared to six months ago. These include affordable / council housing (down 13%), infrastructure (down 12%), built-to-rent (down 9%), hotel and leisure (down 7%). Confidence in offices however improved with 49% of the respondents foreseeing an increase in demand compared to 39% six months ago, and the senior living sector has taken over at the top, with 84% predicting an increase. The industry is undecided on residential sales, with 41% predicting an increase compared to a 38% decrease.
Despite notable policy and funding announcements among the Brexit debate since autumn 2018 by the government and the Mayor, the level of dissatisfaction with central and local governments remains above 8 in 10, with 83% believing central and local governments are not doing enough to enable development activity in the capital. This includes a high of 17% of the respondents believing that they are discouraging development activity.
In particular, confidence in the impact of mayoral policies on London development activity has sharply declined, as just 35% believe his policies will have a positive impact, down from 45% six months ago and 52% in 2017.
Accordingly, 42% now believe mayoral policies will have a negative impact, compared to 32% six months ago. Similarly, optimism regarding town planning policies has also steadily declined, with 34% now believing they will have a positive impact and 44% believe they will have a negative impact, compared to 48% and 42% respectively in autumn 2017.
The industry continues to be concerned about construction skills and capacity and construction cost with 79% and 68% of the respondents respectively believing these will have a negative impact on London development activity. Although the industry is still most confident about the impact of Crossrail 2 and government investment, confidence in these has also declined, with 68% and 55% of the respondents respectively predicting a positive impact compared to 77% and 63% six months ago.
In this context, improvements to the town planning process and funding for local authorities, infrastructure and transport and housing delivery rank as the industry’s top two priorities which has remained so since autumn 2017. Mitigation of the post-Brexit transition ranked only in third place and marginally above amendments to stamp duty policies. Policies to support build to rent and home ownership have consistently ranked as the lowest priorities and do so again.
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. 229 industry professionals took part in the spring 2019 edition, with almost 65% of respondents at director level or above and an average of 21 years’ industry experience.
Gavin Kieran, director, M3 Consulting:
“The industry has had no illusion that Brexit would have anything other than a negative impact on London development activity, and the message to policymakers amidst of Brexit uncertainty has been consistent: improve town planning policies and invest in the built environment. These results show however that while the industry is still buoyed by general optimism in regards to market demand, the prolonged lack of progress on all three fronts may be taking their toll.”