The value of urban brownfield development land dropped sharply in the past year as developers pulled back from buying sites and offered less for land in an attempt to boost margins.

UK development land dropped 18% in value over the 12 months to June 2023, Bloomberg reported, citing data from Knight Frank.

Rising interest rates have pushed down the value of both residential and commercial developments. As a result, developers are willing to pay less for sites.

Developers have taken a double hit in the debt markets, too, Bloomberg reported. Spiking rates have made borrowing more expensive. At the same time, banks are wary about lending on development schemes, preferring to lend at a lower loan-to-cost ratio, meaning borrowers must put more equity into deals.

The LTC at which banks are willing to lend on development schemes in the UK has fallen from 65% to 55% in the last year, data from Bayes Business School showed. Debt funds are more willing to lend to development, the research said, but they have also dropped the LTC at which they will offer development finance from 70% to 60%.

Some major London development sites have seen their value drop in the last year, Bloomberg said. Delancey and APG’s Earls Court mixed-use development fell 15% last year after rising in value by 13% in 2021, it said. British Land’s Canada Water mixed-use development fell by 17% in the year to March.

Even the industrial sector wasn’t immune. BL’s London urban logistics development portfolio took a 24% haircut in the same period.