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Developers Seek New Uses For High-End Resi Schemes As Market Stagnates

It neatly sums up the current state of the high-end London residential market: The man who made his fortune selling London flats is switching a big development next to Thames from residential to hotel use because the apartments aren’t selling.

Ocubis, the property development company of Foxtons founder Jon Hunt, has ditched plans to build 166 luxury apartments at a site on Albert Embankment near Vauxhall and is now planning to build a 660-room hotel instead.

It is just one example of a developer which planned to build high-end residential units changing tack, as the Prime Central London residential market remains well below its 2015 peak.

Developers Seek New Uses For High-End Resi Schemes As Market Stagnates
36-46 Albert Embankment

Ocubis held a public exhibition of revised plans for its Albert Embankment scheme at the end of last month. The original plan comprised two 25-storey residential towers being built on the site of a Texaco garage, with a warehouse next door called Vintage House being retained and refurbished to contain affordable housing and offices.

On the scheme’s website, Ocubis said there would be no changes to the exterior design of the two high-rise towers, but the interior would be remodelled to create a design-led mid-range hotel. Vintage House will now just contain offices.

The change was first reported by Architects’ Journal, which said Jestico + Whiles had been drafted in to oversee the redesign. Make designed the original scheme.

No new planning application has yet been submitted, but Ocubis said on the website that it has been consulting with the local authority, Lambeth Council, about the proposed changes.

Ocubis did not respond to a request for comment, but the website gave an insight into its thinking on the change of plan.

“Following planning permission being granted [in 2017], Ocubis marketed the site extensively for around two years, but received limited interest from the market,” the company said. “Softening residential values, slow rates of sale and significant supply of new housing in the vicinity, including at The Corniche, The Dumont and Merano have all been factors which have prevented us from bringing forward the consented residential scheme.”

Ocubis’ experience on the ground bears out what the top-line statistics for the Prime Central London residential market indicate.

Prime Central London prices have fallen by 13% from the peak of the market in the third quarter of 2015, according to Knight Frank. A combination of increased Stamp Duty Land Tax on high-end homes, Brexit uncertainty, a need to provide increased affordable housing and the fact that the market had been on an incredible bull run for 15 years all contributed to the fall. 

While demand has dropped, supply has not. According to Molior, it would take 3.7 years to sell all the units currently under construction and unsold in inner London as of Q2 if no new construction commences. That is up from 2.7 and 1.9 years at the end of 2018 and 2017, respectively.

Developers Seek New Uses For High-End Resi Schemes As Market Stagnates
The 29-storey Portland House in Victoria

As Ocubis pointed out there is significant competition from schemes right next door being built by developers like Berkeley Homes. And about half a mile down the river is the forest of cranes that is Nine Elms, where about 20,000 new apartments are either being built or have planning consent.

Land values have fallen even further than the price of completed homes, 21% peak to trough, Knight Frank said. In spite of this, it is now more profitable for developers to look at other uses for sites rather than build homes for sale.

In Victoria, Landsec had received planning consent to turn the 29-storey 1960s office block Portland House into 206 luxury residential apartments. But in its 2019 annual report it said it submitted new plans in June for a 401K SF office-led scheme, and was aiming to start on-site in April.

The developers of Battersea Power Station are considering replacing flats with offices in later phases of the scheme, according to the Financial Times. They cited the success of the first office phase of the scheme, where Apple will set up a 500K UK HQ, and the fact that values have come under pressure for residential sales. 

In spite of uncertainty around Brexit, the supply and demand picture for London offices looks much more favourable for offices than it does for prime residential. There is 13.3M SF of office space under construction in London, and 60% of it is already leased or under offer, according to CBRE. That is the highest proportion pre-let for 15 years.

The picture is not quite so rosy for hotels, with PwC predicting flat revenue per available room in London this year. But Ocubis’ site is a short walk from tourist attractions such as the Palace of Westminster and the South Bank.

Other developers are switching from one type of residential to another: London homebuilder Telford Homes pivoted its entire business model from building homes for sale to building for rent. In the documents accompanying its recent £267M purchase by CBRE, the company cited a slowing residential sales market as a reason for the switch.

Hunt made £370M when he sold out of Foxtons at the peak of the last boom in 2007. He knows a thing or two about the London residential market. If he thinks apartments aren’t the best way to make money, it might be worth listening.