At the beginning of 2020, appetite was booming for commercial development land in London. Keen interest from both UK and overseas parties was driving pricing upwards, buoyed by the supply demand imbalance and the Conservative’s election majority. The Covid-19 pandemic and a recession has clearly put the brakes on this. So where are we now?

As lockdown measures start to ease, little evidence exists to support a robust view on where development land values now sit. The land market is always more volatile than other sectors given the range of factors that affect value: there is still a lot of uncertainty around key inputs such as rents and yields, construction costs and programme, finance and planning.

At the beginning of lockdown in particular, several transactions saw the timing of key milestones pushed out to avoid crystallising value. However, every pre-Covid legacy and new land or leasing deal that happens, every funding, and every construction contract that is let or completed, helps to rebuild confidence. This all contributes to building the evidence base for underwriting land value going forward. 

This is why it’s been great to see progress on land deals at Liberty Place and 60 Aldgate. Of particular good news was the completion at the end of last week of the £140 million sale of the 4.5 acre Canada Water Dock site (above) at a headline price agreed pre-lockdown. Savills advised Notting Hill Genesis on the sale, in a joint venture with Sellar Property Group, to Art Invest Real Estate. With the potential for 1.2 million sq ft of commercial space, this is by some margin the largest commercial land deal since the arrival of Covid-19.

Part of the appeal at Canada Water is the scope to deliver new buildings in an environment with space, water, new amenities, and Overground train access – all of which play out well in a post-Covid market.

Discussions around the future of office space have become common, and there’s a range of opinions, but in my view, demand will return. It’s very easy to overlook the true long-term value of office space from a scenario in which virtually everyone is working from home, although a more tolerant and practical approach to an increasingly flexible working model was already happening, albeit slowly. A clearer picture will further help establish a land value base.

Until then, leaving aside financial distress-driven scenarios, we will likely see investors’ focus – and pricing strongest – around opportunities to deliver high quality developments in no-brainer locations. Strong focus will remain on schemes that can cater to London’s (still immature) life sciences market, and those looking at repurposing retail space – again the challenges facing the retail world aren’t new, but have been accelerated recently.

The weight of UK and global capital looking at London hasn’t gone away. As more people return to the city, hopefully the market can continue to reassure itself that it’s able to deal with the new challenges the virus has thrown at it.

One or two major commercial land deals are now being done. There are also a few new opportunities set to come to market where the decision to launch is not driven by distress. This will enable a more balanced view of where land values currently sit in relation to those heady days at the turn of the year. 

Further information

Read more: Market in Minutes: UK Commercial